Assume the bid rate of a Swiss franc is $.57 while the ask rate is $.579 at Bank X. Assume the bid rate of the Swiss franc is $.560 while the ask rate is $.566 at Bank Y. Given this information, what would be your gain if you use $1,000,000 and execute locational arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with?
A) $7,067
B) $8,556
C) $10,114
D) $12,238

Question

​Assume the bid rate of a Swiss franc is $.57 while the ask rate is $.579 at Bank X. Assume the bid rate of the Swiss franc is $.560 while the ask rate is $.566 at Bank Y. Given this information, what would be your gain if you use $1,000,000 and execute locational arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with?
A) ​$7,067
B) ​$8,556
C) ​$10,114
D) ​$12,238

Quizplus · Accepted Answer

The correct answer is A.The gain from locational arbitrage is the difference between the ask rate at Bank X and the bid rate at Bank Y, multiplied by the amount of currency exchanged. In this case, the gain is ($0.579 - $0.560) * $1,000,000 = $7,067.

​Assume the Bid Rate of a Swiss Franc Is

Assume the Bid Rate of a Swiss Franc Is