Assume the following bid and ask rates of the pound for two banks as shown below:

Bid Ask

Bank A $,$$$1\mathrm{.}41,$$$1\mathrm{.}42$

Bank B $,$$$1\mathrm{.}39,$$$1\mathrm{.}40$

As locational arbitrage occurs:

the bid rate for pounds at Bank A will decrease; the ask rate for pounds at Bank $B$ will increase

the bid rate for pounds at Bank A will increase; the ask rate for pounds at Bank B will increase.

the bid rate for pounds at Bank A will decrease; the ask rate for pounds at Bank B will decrease.

$$ the bid rate for pounds at Bank A will increase; the ask rate for pounds at Bank B will decrease.