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Suppose you trade dollars and euros for a bank that has branches in Los Angeles and Frankfurt. You can electronically transfer the funds between the two branch locations at no cost, and trading commissions are negligible. The current dollar-per-euro exchange rate in Los Angeles is E$/EURLA=1.5653 , while in Frankfurt, it is E$/EURFR=1.586.

You can make a profit for the bank if you buy euros in _______ and sell them in _________.

Respuesta :

Answer:

Explanation:

Profit will be made by you for the bank if you buy the Euros in Los Angeles, and sell the Euros to customers in Frankfurt...

Buying in Los Angeles comes at a price of $1 = €1.5653, then going ahead to sell in Frankfurt means you get to sell it at a rate of $1 = €1.586

Although this is a very tiny difference, of 0.0207. The reality is that when you're doing a lot of tradings that involves currency, you tend to see the profit. If for example, a total of $1 million is traded, then the profit would be $20700, which we all can attest to the fact that it's a lot of money.

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