Re!all that Blades, a ).&. "anufa!turer of roller blades, has !hosen *hailand as its pri"ary e+port target for &peedos, Blades pri"ary produ!t. Moreo-er, Blades pri"ary !usto"er in *hailand, ntertain"entProdu!ts, has !o""itted itself to pur!hase /%$,$$$ &peedos annually for the ne+t 0 years at a fi+ed pri!e deno"inated in baht, *hailands !urren!y. Be!ause of 1uality and !ost !onsiderations, .B/ades also i"ports so"e of the rubber and plasti! !o"ponents needed to "anufa!ture &peedos fro" *hailand.2ately, *hailand has e+perien!ed 3eak e!ono"i! gro3th and politi!al un!ertainty. As in-estors lost !onfiden!e in the *hai baht as a result of the politi!al un!ertainty, they 3ithdre3 their funds fro" the !ountry. *his resulted in an e+!ess supply of baht for sale o-er the de"and for baht in the foreign e+!hange "arket, 3hi!h put do3n3ard pressure on the bahts -alue. As foreign in-estors !ontinued to 3ithdra3 their funds fro" *hailand, the bahts -alue !ontinued to deteriorate. &in!e Blades has net !ash flo3s in baht resulting fro" its e+ports to *hailand, a deterioration in the bahts -alue 3ill affe!t the !o"pany negati-ely. Ben 4olt, Blades C5, 3ould like to ensure that the spot and for3ard rates Blades bank has 1uoted are reasonable. If the e+!hange rate 1uotes are reasonable, then arbitrage 3ill not be possible. If the 1uotations are not appropriate, ho3e-er, arbitrage "ay be possible. )nder these !onditions, 4olt 3ould like Blades
1q
use so"e for" of arbitrage to take ad-antage of possible "ispri!ing in the foreign e+!hange "arket. Although Blades is not an arbitrageur, 4olt belie-es that arbitrage opportunities !ould offset the negati-e i"pa!t resulting fro" the bahts depre!iation, 3hi!h 3ould other3ise seriously affe!t Blades profit "argins. Ben 4olt has identified three arbitrage opportunities as profitable and 3ould like to kno3 3hi!h one of the" is the "ost profitable. *hus, he has asked you, Blades finan!ial analyst, to prepare an analysis of the arbitrage opportunities he has identified.*his 3ould allo3 4olt to assess the profitability of arbitrage opportunities -ery 1ui!kly./. *he first arbitrage opportunity relates to lo!ational arbitrage. 4olt has obtained spot rate 1uotations fro" t3o banks in *hailand: Min6u Bank and &obat Bank, both lo!ated in Bangkok. *he bid and ask pri!es of *hai baht for ea!h bank are displayed in the table belo3:
Minzu BankSobat BankBid$.0224$.0228Ask$.0227$.0229
: II 8eter"ine 3hether the foreign e+!hange 1uotations are appropriate. If they are not appropriate, deter"inethe profit you !ould generate by 3ithdra3ing 9/$$,$$$ fro" Blades !he!king a!!ount and engaging in arbitrage before the rates are adusted. #. Besides the bid and ask 1uotes for the *hai baht pro-ided in the pre-ious 1uestion, Min6u Bank has pro-ided the follo3ing 1uotations for the ).&. dollar and the Japaneseyen:

QuotedBid PriceQuotedAsk PriceValue o !a"anese #en in .S. dollars$.008%&$.008'Value o ()ai ba)t in !a"anese #en*2.'9*2.70
8eter"ine 3hether the !ross e+!hange rate bet3een the *hai baht and Japanese yen is appropriate. If it isnot appropriate, deter"ine the profit you !ould generate for Blades by 3ithdra3ing 9/$$,$$$ fro" Blades !he!king a!!ount and engaging in triangular arbitrage before the rates are adusted.0. Ben 4olt has obtained se-eral for3ard !ontra!t 1uotations for the *hai baht to deter"ine 3hether !o-ered interest arbitrage "ay be possible. 4e 3as 1uoted a for3ard rate of 9.$##; per *hai baht for a