GBU 5306 – Case 1

Spring 2024

A Kuwaiti company involved in international trade has a total of 5 million dollars that can be exchanged
for euros (€), British pounds (£), Yen (¥) and Kuwaiti dinars (KD). The table below provides exchange rates
as of October 1st, 2022.

Exchange rates: $ € £ ¥ KD
$ 1.0000 1.0300 0.8900 149.0000 0.3100
€ 0.970874 1.000 0.870 145.000 0.300
£ 1.123596 1.149425 1.000 167.000 0.350
¥ 0.006711 0.006897 0.005988 1.00000 0.00210
KD 3.225806 3.333333 2.857143 476.1905 1.000

Currency dealers have set the following limits on the amount of any single currency exchange transaction:
5 million dollars, 3 million euros, 3.5 million pounds, 100 million yen, and 2.8 million Kuwaiti dinar. This
means, for instance that exchanging dollars to any other currency cannot exceed the 5-million-dollar limit
set for USD, etc.

The company would like to circulate currencies through the currency market so that the final dollar
holding following the exchange transactions are maximized. This is a form of arbitrage maximization.

Write a decision-making managerial report that contains the following parts:

1) Introduction and background.

2) Literature review (as comprehensive as possible) on the use of optimization techniques, and
linear programming in particular, in foreign exchange operations. The literature on the topic is
huge, so be structured in organizing your literature review and limit yourself to journal
publications in reputable journals and book chapters.
3) Methodology. A section when you need to describe your modeling and solution methodology to
tackle the problem at hand. This section does not need to be long.
4) Analysis. In this section, you need to develop and present:
a. An explicit linear programming model that represents the case at hand;
b. An Excel implementation of the model suggested;
c. A generic linear programming model;
d. A GMPL (GUSEK) implementation.
5) Application in the Moroccan context. In this section you need to discuss the foreign exchange
industry in the context of the Moroccan banking sector and give examples of companies or
organizations that could benefit from your model.
6) Conclusion. In this section, you summarize your work, indicate its limitations, and propose a few
avenues for further development.
7) Appendices, with printouts of your Excel Sheet with explanations of the main formulae, and
printout of your GMPL (GUSEK) code.