Question

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 $10,000,000 worth of British pounds from a currency dealer and then sell them to the dealer five minutes later, how much of your $10,000,000 would be "eaten" by the bid-ask spread?

Answer 1

Answer:

$52,631.57894736

Step-by-step explanation:

$10000000 worth of British pounds bought at $1.90 = £1.00 exchange rate will be = (10000000 ÷ 1.90) = £5.263157894736 × 10⁶

If the amount is sold 5 minutes later with exchange rate of $1.89 = £1.00, amount will be = £5.263157894736 × 10⁶ × 1.89 = $9.947368421052 × 10⁶

Amount that will be eaten =

10,000,000 - 9947368.21052 = $52,631.57894736