A foreign exchange dealer in Tokyo posts an ask price of 95.51 yen for AUD and a bid price of 95.48 yen.What is the dealer's profit on the simultaneous purchase and sale of AUD1 million?

Question

Quizplus · Accepted Answer

To find the dealer's profit, we need to first calculate the spread, which is the difference between the bid and ask prices. In this case, the spread is 95.51 - 95.48 = 0.03 yen.

To determine the profit on the simultaneous purchase and sale of AUD1 million, we need to convert AUD1 million to yen. Assuming an exchange rate of 95.51 yen/AUD, 1 million AUD is equal to:
1,000,000 AUD * 95.51 yen/AUD = 95,510,000 yen

Now, we can calculate the profit by considering the spread. If the dealer buys AUD1 million at the ask price of 95.51 yen and sells it immediately at the bid price of 95.48 yen, they will make a profit of:
1,000,000 AUD * (95.48 yen/AUD - 95.51 yen/AUD) = -3,000 yen

Since the dealer is buying at the higher ask price and selling at the lower bid price, they will actually incur a loss of 3,000 yen or ¥30,000. Therefore, the correct answer is D: ¥30,000 profit.

A Foreign Exchange Dealer in Tokyo Posts an Ask Price