Your forex dealer quoted the following exchange rate for spot, the one month RM/US$ rates and RM/ £ rates :

RM / US$	3.9954/62	55/63
RM / £	5.5020/32	56/48

 

Three month interest rate in Malaysia is 5%, in the United States is 6% and in United Kingdom is 4%.

How many ringgit would you receive if you exchange with US$ 115,000 for delivery in three months?

How many £ would you exchange with RM 120,000 for delivery in three months?

What is the annualized premium (discount) on the month bid forward RM/ £ rate?

What is the percentage spread of the RM/£ one month forward quotation?

If the spot rate US/£ is 1.3732/61 were quoted in London, what would you do to make profit on the US/£ arbitrage?

Analyze the conditions that will result in  locational arbitrage and the realignments that will follow.