Homework Answers
The currency dealer will buy euros from you at the bid rate, and sell euros to you at the ask rate. The difference between the bid rate and ask rate is the currency dealer's margin.
Rate at which euros can be sold = bid rate = $1.2/€
Rate at which euros can be bought = ask rate = $1.25/€
If €1,000 are sold, $ received = €1,000 * $1.2 = $1,200
If $1,200 are sold, € received = $1,200 / €1.25 = €960
The result is that you will have €960
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