Smiroff Vodka Arbitrage

An Arbitrage profit is the return an investor make when he buy from one market and sell simultaneously in another. The return is risk-free and requires zero net investment.

Scenario: If you buy a Vodka Smiroff (1 litre) in Australia Duty Free it would cause you 23AUD. If you buy the same product in a budget liquor stall such as BWS (BEER WINE SPIRITS) it would cause you 42 dollar.

Spot rate on 27th March by UOB :1.27/AUD
SGD equivalent:

1. Price in Brisbane Duty Free= 1.27 * 23= 29.21SGD
2. Price in BWS=1.27 * 42=53.34SGD

Since price in Duty Free Singapore is 16.30SGD

Buy in Singapore DFS and sell in Brisbane BWS. The arbitrageur would make:
53.34 - 16.30SGD = 37.04 SGD

1. Discrete return= 227%
2. Continuous Compounded return= ln(53.34/16.30) = 119%

Buy in Singapore DFS and sell in Brisbane DFS. The arbitrageur would make:
29.21 - 16.30 = 12.91SGD

1. Discrete return= 79%
   
2. Continuous Compounded return= ln(29.21/16.30) = 58%

Assumptions:

1. No taxes and duty charges
2. Exchange rates remain constant after 27th march 08
3. Existence of buyer
   

Anyway i brilliantly bought 2 litres from Singapore Duty Free and save some money for the social drinkers of H05. The result, everyone got pretty drunk and we had Calvin (left with the spider-man look) and Mark ( right) posing for us.


More drinking anyone ? :>