Bank a Quotes a Bid Rate of $0

question 6

Multiple Choice

Bank A quotes a bid rate of $0.300 and an ask rate of $0.305 for the Malaysian ringgit (MYR) . Bank B quotes a bid rate of $0.306 and an ask rate of $0.310 for the ringgit. What will be the profit for an investor that has $500,000 available to conduct locational arbitrage?

• A) $2,041,667
• B) $9,804
• C) $500
• D) $1,639

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Definitions:

Residual Income

Residual income is the amount of net income generated beyond the minimum return expected by an entity or on an investment, often used as a measure of corporate and individual performance.

Return on Investment

A measure used to evaluate the efficiency or profitability of an investment, calculated as return divided by the cost of the investment.

Support Department Allocation Rate

A rate used to allocate the costs of support departments to producing departments or directly to products based on relevant factors or usage measures.

Cost Drivers

Factors that cause the cost of an activity or product to change, such as production volume or raw material prices.