Suppose the price of gold in New York is $1750 per ounce,while the price of gold in London is $1760.If there are transaction costs of 0.5% when buying or selling in either market,what is the net effect of buying one ounce of gold in New York and selling it in London?

Question

Quizplus · Accepted Answer

If we buy one ounce of gold in New York, we need to pay $1750 + 0.5% transaction cost = $1758.75.

If we sell the same ounce of gold in London, we receive $1760 - 0.5% transaction cost = $1751.2.

Therefore, the net effect would be a loss of $7.55 ($1751.2 - $1758.75).

Suppose the Price of Gold in New York Is $1750