Assume the Following Bid and Ask Rates of the Pound

question 34

Multiple Choice

Assume the following bid and ask rates of the pound for two banks as shown below:
$\begin{array}{lll} & \underline{\text { Bid }} & \underline{\text { Ask }} \\\text { Bank A } & \$ 1.41 & \$ 1.42 \\\text { Bank B } & \$ 1.39 & \$ 1.40\end{array}$

As locational arbitrage occurs:

• 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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