Question

QUESTION 11 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 EURO.5 Again of EUR 43.2 None of the answers is correct.

Answer 1

If I buy stock in France, Amount paid = EUR 36.50 {ASK RATE}

Amount received by selling stock in Great Britian = GBP 30 {BID RATE}

Converting sales proceeds of stock received in GBP to Euro = GBP30 x 1.20 = Eur 36

Therefore net Gain / (loss) = Sales Proceed - Purchase price

Therefore net Gain / (loss) = Eur 36 - Eur 36.50

Therefore, net loss = Eur 0.50

Thumbs up please if satisfied. Thanks :)

Comment if further doubts in above.