For a bank to make a profit from foreign exchange forward agreements, the difference between the asked price and the bid price must be
A)zero.
B)positive.
C)negative.
D)less than the rate of interest.

Question

Quizplus · Accepted Answer

The difference between the asked price and the bid price, known as the bid-ask spread, is the profit earned by the bank in foreign exchange forward agreements. Therefore, for the bank to make a profit, the bid-ask spread must be positive. If it were zero or negative, the bank would not earn any profit from the transaction. The rate of interest is irrelevant to this calculation.

For a Bank to Make a Profit from Foreign Exchange