Bank A asks $.555 for Swiss francs and Banks B and C are willing to pay $.557 for francs. An institution could capitalize on these differences by engaging in

Question

Quizplus · Accepted Answer

The scenario described here is an example of locational arbitrage, which involves taking advantage of price differences between different geographic locations. In this case, an institution could buy Swiss francs from Bank A at the lower rate of $.555 and then immediately sell them to Bank B or C at the higher rate of $.557, thus making a profit from the difference. Covered interest arbitrage involves taking advantage of differences in interest rates between two countries, while triangular arbitrage involves exploiting pricing discrepancies between three different currencies. Witching hour arbitrage is not a recognized term in finance.

Bank a Asks