Assume the following bid and ask rates of the pound for two banks as shown below:
As locational arbitrage occurs:
Bid
Ask
Bank A
$1) 41
$1) 42
Bank B
$1) 39
$1) 40
A) the bid rate for pounds at Bank A will increase; the ask rate for pounds at Bank B will increase.
B) the bid rate for pounds at Bank A will increase; the ask rate for pounds at Bank B will decrease.
C) the bid rate for pounds at Bank A will decrease; the ask rate for pounds at Bank B will decrease.
D) the bid rate for pounds at Bank A will decrease; the ask rate for pounds at Bank B will increase.
Correct Answer:
Verified
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