On Commodity Exchange A, It Is Possible to Buy and Sell

question 71

Multiple Choice

On Commodity Exchange A, it is possible to buy and sell crude oil at $116 per barrel, while on Commodity Exchange B crude oil can be bought and sold at $117 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) -$1.33
• B) -$0.67
• C) $1.06
• D) $1.60

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Definitions:

Critical Thinking

The intellectually disciplined process of actively and skillfully conceptualizing, applying, analyzing, synthesizing, and/or evaluating information.

Problem-Solving

A method or process of resolving issues, challenges, or complexities in a systematic manner.

Evaluating Alternatives

The process of analyzing and comparing different options in decision-making to select the most beneficial or cost-effective option.

Sarbanes-Oxley Act

A U.S. law enacted in 2002 to protect investors by improving the accuracy and reliability of corporate disclosures.