Assume locational arbitrage is possible and involves two different banks. The realignment that would occur due to market forces would increase one bank's ask rate and would decrease the other bank's bid rate.

Question

Quizplus · Accepted Answer

Locational arbitrage refers to the process of taking advantage of price or rate differences in different geographic locations. If the arbitrage opportunity exists between two different banks, then it means there is a price or rate difference between them. Market forces would work to eliminate this difference, which would result in an increase in the bank's ask rate with higher rates and a decrease in the bid rate at lower rates, making it possible to profit from the price differential. Therefore, the statement is true.

Assume Locational Arbitrage Is Possible and Involves Two Different Banks