Suppose the quote on pounds was $1.624-31. If you converted $10,000 to

Suppose the quote on pounds was $1.624-31. If you converted $10,000 to pounds and then back to dollars, how many dollars would you end up with?

What will be an ideal response?

ANSWER

Answer: For $10,000, you would buy pounds at the asking price. Given this quote, the asking price would be $1.631/£. At the ask rate this would give you £6,131.21 ($10,000/1.631). You would then resell them at the bid price of $1.624. When you completed this transaction it would yield $9,957.08. The round-trip cost of the two transactions, buying and selling , would be $42.92.