Question

Suppose the spot ask exchange rate, sa ($£), is $1.90 = £1.00 and the spot bid exchange rate, S($1£), is $1.89 = £1.00. If you were to buy $10,000,000 worth of British pounds and then sell them five minutes later, how much of your $10,000,000 would be "eaten" by the bid-ask spread? Multiple Choice O $1,000,000 O $52910 $52,910 O $100,000 $52,632

Answer 1

Solution ? 1 f = $189 - $1.90 1$ = $ 10 - 2189 ounds & sell Dollars = $10,000,000 x 1 1.90 - £5263157.895 sell Pounds & Buy Dollars - £526°3 157.895 X1.89 $ 9947368.42 Amount eatenby bid ask spread = $ 10000,000 (9947368.42 - $52631-580r|$52632 option