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CFA L2 texts has a question on currency arbitrage that I am having difficulty grasping how to think about it.
Question sums to: You are a UK Manufacturer and will need to pay an invoice in MXN of $27M MXN. Dealer B quotes you: GBP/MXN .0366 / .0370. Dealer A quotes you: GBP/MXN: .0366 / .0372. What is the Currency Arb Profit, if any? Answer is 0. There is no Arb.
How have you found the best way to think about which currency you are buying and selling? My provider has said that everything happens on the Base. But in this question, how am I clear which is the Base? My thought: I am a UK Company, so I am selling GBP to get MXN, thus GBP is the Base. Is it best to think of this as Selling the GBP, or Buying the MXN? How do you translate that to know if you should use the Bid or the Ask? I know the Dealer will sell high. So, then I can know that I am using the Ask?
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