Assume the Following Bid and Ask Rates of the Pound

question 39

Multiple Choice

Assume the following bid and ask rates of the pound for two banks as shown below:
​
As locational arbitrage occurs:
​
Bid
Ask
Bank A
$1) 41
$1) 42
Bank B
$1) 39
$1) 40

• A)the bid rate for pounds at Bank A will increase; the ask rate for pounds at Bank B will increase.
• B)the bid rate for pounds at Bank A will increase; the ask rate for pounds at Bank B will decrease.
• C)the bid rate for pounds at Bank A will decrease; the ask rate for pounds at Bank B will decrease.
• D)the bid rate for pounds at Bank A will decrease; the ask rate for pounds at Bank B will increase.

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Definitions:

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