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 and then sell them five minutes later, how much of your $10,000,000 would be "eaten" by the bid-ask spread?

Buying pounds t spot rate and reselling it thereafter gives a loss of $52631.58 ,which is the amount eaten by the bid-ask spread.

Explanation:

Eaten as used in the question is a technical word which implies the loss incurred by selling pounds at bid rate which earlier bought at the spot rate.

Spot rate $1.90=£ 1

Bid rate  $1.89=£ 1

By buying  £  using $10000000 I get :

$10000000/$1.9 = £5263157.89

By selling the pounds thereafter at bid rate gives:

£5263157.89 *$1.89=$9947368.42

In other words, there is a loss of $52631.58

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