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Assume the Following Bid and Ask Rates of the Pound

Question 1

Multiple Choice

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:

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