Assume the following bid and ask rates of the pound for two banks as shown below: As locational arbitrage occurs:

Question

Assume the following bid and ask rates of the pound for two banks as shown below:  As locational arbitrage occurs:

Quizplus · Accepted Answer

Locational arbitrage refers to the process of taking advantage of the differences in exchange rates between different geographic locations. In this case, Bank C's bid rate is higher than Bank D's ask rate, which means that one can buy pounds at a lower rate from Bank D and sell them at a higher rate to Bank C to make a profit. As a result of this demand, the bid rate for pounds at Bank C will decrease, and the ask rate for pounds at Bank D will increase. Therefore, the correct choice is D.

Assume the Following Bid and Ask Rates of the Pound