Assume the bid rate of an Australian dollar is $.60 while the ask rate is $.61 at Bank Q. Assume the bid rate of an Australian dollar is $.62 while the ask rate is $.625 at Bank V. 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?
A) $10,003.
B) $12,063.
C) $14,441.
D) $16,393.
E) $18,219.

Question

Quizplus · Accepted Answer

SOLUTION:
$1,000,000/$.61 = A$1,639,344 × $.62 = $1,016,393. Thus, the profit is $16,393.

Assume the Bid Rate of an Australian Dollar Is