Assume the bid rate of a New Zealand dollar is $.33 while the ask rate is $.335 at Bank X. Assume the bid rate of the New Zealand dollar is $.32 while the ask rate is $.325 at Bank Y. Given this information, what would be your gain if you use $1,000,000 and execute locational arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with?

Question

Quizplus · Accepted Answer

SOLUTION:	$1,000,000/$.325 = NZ$3,076,923  $.33 = $1,015,385. Thus, the profit is $15,385.

Assume the Bid Rate of a New Zealand Dollar Is