Assume the bid rate of a new zealand dollar is $.33 while the ask rate is $.335 at bank x. assume the bid rate of the new zealand dollar is $.32 while the ask rate is $.325 at bank y. given this information, what would be your gain if you use $1,000,000 and execute locational arbitrage? that is, how much will you end up with over and above the $1,000,000 you started with?

You will end up with $15,384.62 over and above the $1,000,000 you started with.

Explanation:

We purchase 1 NZ dollar from bank Y at $0.325 and sell it to Bank X at $0.33

NZ dollars that can be bought by = 1,000,000/0.325

                                                        = $3,076,923.08

Gain on $1,000,000 = 3,076,923.08*(0.33 - 0.325)

                                  = $15,384.62

Therefore, You will end up with $15,384.62 over and above the $1,000,000 you started with.

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