Question 10 You purchased 3000000 Indian rupees in London at

Question 10 You purchased 3,000,000 Indian rupees in London at an exchange rate of 54.86 to the dollar and simultaneously sold the rupees in Bahrain at an exchange rate of 55.12 to the dollar. What is the name for such a transaction?

a. arbitrage

currency swapping

exchange rate hedging

trend trading

Solution

Arbitrage means making of riskless profit. Here, differences in exchange rate are used to make profits.

Hence, it is arbitrage.