Question

Use the following quotes to answer the next questions 1 − 3

Direct Market for ¥/MXN                                  Bids                              asks

Deutsche Bank’s quote:                                    ¥12.09/MXN                 ¥12.22/MXN

Barclays’ quote:                                                ¥12.11/MXN                 ¥12.18/MXN

CSFB’s quote:                                                    ¥12.10/MXN                 ¥12.17/MXN

Citigroup’s quote:                                             ¥12.08/MXN                 ¥12.21/MXN

1. Which bank has the most competitive ask price?

2. Which bank has the most competitive bid price?     

3. Is there a locational arbitrage opportunity? Why or why not?

Answer 1

Most competitive ask price is of CSFB since it is willing to sell MXN at the rate of ¥12.17 which is lowest compared to other banks

Most competitive bid price is of Barclays since it is willing to buy MXN at rate of ¥12.11 higher than all other banks

Location arbitrage opportunity is not available since the best ask price is more than best bid price.

Arbitrage opportunity would have been available is best ask price is less than best bid price.

To understand more clearly, imagine you want to trade.

The best rate at which you can buy (banker's ask price) MXN is ¥12.17

and the best price at which you can sell (banker's bid price) MXN is ¥12.11

Thumbs up please if satisfied. Thanks :)

Comment for further doubts.