On Commodity Exchange A it is possible to buy and sell crude oil at $117 per barrel,while on Commodity Exchange B crude oil can be bought and sold at $118 per barrel.If there are transaction costs of 1% when buying or selling on either exchange,what is the net effect of buying a barrel of oil on Exchange A and selling it on Exchange B?
A)-$1.35
B)-$0.17
C)$0.99
D)$1.01

Question

Quizplus · Accepted Answer

The cost on Exchange A is $117 + 1% of $117 = $118.17. The revenue on Exchange B is $118 - 1% of $118 = $116.82. The net effect is $116.82 - $118.17 = -$1.35.

On Commodity Exchange a It Is Possible to Buy and Sell