Assume the Following Bid and Ask Rates of the Pound

question 58

Multiple Choice

Assume the following bid and ask rates of the pound for two banks as shown below:
$$\begin{array} { l l l } & \underline { \text { Bid } } & \underline { \text { Ask } } \\\text { Bank C } & \$ 1.61 & \$ 1.63 \\\text { Bank D } & \$ 1.58 & \$ 1.60\end{array}$$
As locational arbitrage occurs:

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

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Definitions:

Bottom-up Processing

An approach to information processing that starts with small details and works up to a coherent whole.

Sensory Adaptation

The sequence by which receptors dedicated to sensing decrease their sensitivity to consistent stimuli over durations.

Perceptual Process

The sequence of psychological steps that a person uses to organize and interpret information from the external world into meaningful experiences.

Contrast Effects

A cognitive phenomenon where the judgment of one item is influenced by the comparison with a recently encountered contrasting item.