Assume the Following Bid and Ask Rates of the Pound

question 32

Multiple Choice

Assume the following bid and ask rates of the pound for two banks as shown below: 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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Definitions:

Overcompensation

A psychological term referring to the defense mechanism by which individuals cover up their weaknesses, real or imagined, by emphasizing traits they consider more desirable.

Intellectualization

A defense mechanism where reasoning is used to block confrontation with an unconscious conflict and its associated emotional stress.

Post-Traumatic Stress Disorder

A psychiatric disorder that can occur in people who have experienced or witnessed a traumatic event, characterized by flashbacks, anxiety, and persistent disturbing thoughts.

Catastrophic Thinking

An irrational thought leading individuals to believe that something is far worse than it actually is.