What is Locational Arbitrage?

Question 1 

The locational arbitrage is possible in this case: 

Step 1: Buying the Thai baht from Minzu will be ($100,000/ $0.0227) = THB 4,405,286.34 

Step 2: Selling Thai baht to the Bank of Sobat (THB 4,405,286.34 * $0.0228) = 100,440.52 

Step 3: The dollar profit ($100,440.52 - ($100,000) = 440.52 

Through the locational arbitrage, the company will make a profit by buying the baht from Mzinu bank which has a low asking price and selling to the bank of Sobat who has a bid price higher than the ass price of Mzinu bank. 

Question 2 

The possible method is the triangular arbitrage. 

Step 1: Exchange the dollars to Thai baht using Minzu Bank: ($100,000/ $0.0227) = THB 4,405,286.34 

Step 2: Then covert the baht to Japanese yen which will be (THB 4,405,286.34 * ¥2.69) = ¥11,850,220.25 

Step 3: this step would involve converting the Japanese yen into dollars that will be (¥11,850,220.25 * $0.0085) = $100,726.87 

Step 4: The dollar profit will be ($100,726.87 - $100,000) = 726.87 

Question 3 

The possible method is covered interest arbitrage 

Step 1: day 1 convert the dollars into Thai baht and then open a 90 day account. ($100,000/ $0.0227) = THB 4,405,286.34 

Step 2: On day 90 the deposit will mature resulting in (THB 4,405,286.34 * 1.0375) = 4,570,484.58 that can be sold forward. 

Step 3: Then concert the Thai baht to dollars (THB 4,570,484.58 * $0.0225) = $102,835.90 

Step 4: Dollar profit ($102,835.90 - $100,000) = $2,835.90 

Question 4 

The arbitrage opportunities will mainly disappear when they have discovered due to changes in market forces. Moreover, because of the actions taken by the arbitrageurs the demand and the supply of the foreign currency will mainly adjust to the point when the mispricing disappears.