On Commodity Exchange A it is possible to buy and sell crude oil at $117 per barrel, while on Commodity Exchange B crude oil can be bought and sold at $119 per barrel. If there are transaction costs of 1% when buying or selling on either exchange, what is the net effect of buying a barrel of oil on Exchange A and selling it on Exchange B?
A)$1.01
B)-$0.36
C)-$0.47
D)$0.99

Question

Quizplus · Accepted Answer

Buying at Exchange A costs $117 plus 1% transaction cost, totaling $118.17. Selling at Exchange B for $119 minus 1% transaction cost results in $117.81. The net effect is -$0.36.

On Commodity Exchange a It Is Possible to Buy and Sell