Locational Arbitrage

Quoted Bid Rate (€) Quoted Ask Rate (€)

ScotiaBank Canada 1.4182 1.5044
Bank of Montreal 1.4015 1.5233

Arbitrage is not plausible for Amazon because the ask rate of Bank of Montreal is higher than
the bid rate of ScotiaBank Canada and vice versa.

Triangular Arbitrage

Quoted Bid Rate Quoted Ask Rate

GBP in CAD$ 1.7137 1.7147
€ in CAD 1.4613 1.4620
GBP in € €1.1726 €1.1724

Cross exchange rate = 1.7137 ÷ 1.4613 1.7147 ÷ 1.4620

= € 1.1727 = €1.1728

Triangular arbitrage is plausible for Amazon because the implied bid rate for the Euro, € 1.1726,
is actually lower than the calculated cross exchange bid rate, €1.1727. It is also plausible been
that the calculated cross exchange ask rate, €1.728, is above the implied ask rate, €1.1724.

Covered Interest Arbitrage

According to Feiner 2019, Amazon is expanding Amazon air in its air fleets to include 50 planes
and new regional hubs and would invest $1.5 billion into a new hub in Northern Kentucky.
Current Spot bid rate for the pound (£) = $1.29
3-month expected forward rate of £ = $39.35
3 month interest rate in U.S = 1.75%
3-month interest rate in U.K = 0.75%

1.5 billion ÷ $1.29

= $ 1,162,790,697.67

1,162,790,697.67 × (1 + 0.75)
= $1,162,790,697.67 × 1.75
= $ 2, 034, 883, 720.92

$2, 034, 883, 720.92 × $39.35

= $ 80,072,674,418.20

Profit from the 1.5 billion = 80,072,674,418.20 – 1, 500, 000, 000

= $ 78,572,674,418. 20

Yield = $78,572,674,418.20 ÷ $1, 500, 000, 000.00

= 52.38 × 100
= 5238%

Therefore, covered interest arbitrage can be possible for Amazon to invest its money in pounds.

*Currencies used are being quoted as of November 26, 2019

Feiner, L. (2019). Amazon is spending billions on internet satellites, self-driving cars and more
as revenue growth slows. Retrieved from: https://www.cnbc.com/2019/05/17/amazon-makes-
several-start-up-investments-revenue-growth-slows.html

Currencies Data Effective November 26, 2019. Retrieved from:

https://www.scotiabank.com/ca/en/personal/rates-prices/foreign-exchange-rates.html

https://www.bmo.com/home/personal/banking/rates/foreign-exchange

https://www.investing.com/currencies/gbp-cad

https://www.investing.com/currencies/gbp-eur

https://www.investing.com/currencies/eur-cad

https://www.global-rates.com/interest-rates/central-banks/european-central-bank/ecb-interest-
rate.aspx

https://www.bloomberg.com/quote/GBP:CUR

https://www.investing.com/currencies/gbp-usd-forward-rates