Assume the bid rate of a Swiss franc is $.57 while the ask rate is $.579 at Bank X. Assume the bid rate of the Swiss franc is $.560 while the ask rate is $.566 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?
A) $7,067.
B) $8,556.
C) $10,114.
D) $12,238.

Question

Quizplus · Accepted Answer

$1,000,000/$.566 = SF1,766,784 × $.57 = $1,007,067. Thus, the profit is $7,067.

Assume the Bid Rate of a Swiss Franc Is