Question

Assume you are a French investor. You see that stock for British Airways has a bid price of EUR 36 and an ask price of EUR 36.5 on the French exchange, a bid price of GBP30 and an ask price of GBP30.1 in Great Britain; and that the EUR/GBP bid-ask rates are 1.20 - 1.25. How much would you gain or lose by buying the stock in France and selling it in Great Britain?

		A gain of EUR1
		A loss of EUR0.5
		A gain of EUR 43.2
		None of the answers is correct.

Answer 1

Cost of buying stock in France = EUR 36.5

GBP received on sale of stock in Britain = GBP 30

EURO received on conversion of GBP 30 = 30 X EUR 1.20 = EURO 36

Realized EURO 36 is less than cost of buying of EURO 36.50

Loss as a result = 36.50 – 36 = 0.5 EURO

Answer is loss of EURO 0.50

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