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Suppose the spot ask exchange rate, Sa($|£), is $1.90 = £1.00 and the spot bid exchange rate, Sb($|£), is $1.89 = £1.00. If you were to buy $1,000,000 worth of British pounds and then sell them ten minutes later, how much of your $1,000,000 would be "eaten" by the bid-ask spread? Selected Answer: 5236.16

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Tundexi

Answer:

Spot ask exchange rate = $ 1.90 for 1 British Pound

Spot bid exchange rate = $ 1.89 for 1 British Pound

If you buy pounds at the spot ask exchange rate for $10,000,000. You will get $1,000,000/$1.90 = £526,315.789

If you sell these pounds (£5,263,157.89) at the bid. You will get £526,315.789*$1.89 = $994,736.84

After selling these bonds at bid, the loss will be equals to $1,000,000 - $994,736.84 = $5,263.16

Therefore, $5,263.16 would be "eaten" by the bid-ask spread

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