Question 1

Suppose the spot ask exchange rate,S^a($/£),is $1.90 = £1.00 and the spot bid exchange rate,S^b($/£),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?

Accepted Answer

The bid-ask spread is the difference between the spot ask and spot bid exchange rates. In this case, the bid-ask spread is:

$1.90 - $1.89 = $0.01

To calculate how much of the $10,000,000 would be eaten by the bid-ask spread, we need to calculate the percentage of the spread in relation to the amount of British pounds bought and sold:

Spread percentage = spread / spot bid exchange rate = $0.01 / $1.89 = 0.0053 or 0.53%

Now we can calculate how much of the $10,000,000 would be eaten by the spread:

Spread cost = spread percentage x transaction amount = 0.53% x $10,000,000 = $52,632

Therefore, the correct answer is D, $52,632.

Question 2

$$\begin{array} { | l | c | c | } 
\hline &  { \text { USD equivulent } } \
\hline { \text { Courtry } } & \text { BIB } & \text { ASK } \
\hline \text { Bwitzerlard (Frarc) CHF } & 0.7648 & 0.7652 \
\hline \text { Euro  €  } & 1.4000 & 1.4200 \
\hline
\end{array}$$ What is the BID cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will pay in euro to buy Swiss francs.

Accepted Answer

To find the BID cross-exchange rate for Swiss Francs priced in euros, we use the formula: BID rate for CHF in EUR = 1 / ASK rate of EUR in USD * BID rate of CHF in USD. This gives us 1 / 1.4200 * 0.7648 = 0.5386.

Question 3

Suppose you observe the following exchange rates: €1 = $1.25; £1 = $2.00.Calculate the euro-pound crossrate.

Accepted Answer

To calculate the euro-pound crossrate, we need to divide the pound-dollar exchange rate by the euro-dollar exchange rate. So,
£1 = $2.00 / €1.25 = €1.60. Therefore, the euro-pound crossrate is £1 = €1.60.

Question 4

A dealer in British pounds who thinks that the pound is about to depreciate

Accepted Answer

A dealer expecting the pound to depreciate would lower both the bid and ask prices to reduce inventory risk and remain competitive in the market.

Question 5

Suppose you observe the following exchange rates: €1 = $1.45; £1 = $1.90.Calculate the euro-pound exchange rate.

Accepted Answer

€1 = $1.45 and £1 = $1.90. So, €1 = £1 * $1.90 / $1.45 = £1.3103.

Question 6

In conversation,interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations.Consider a $/£ bid-ask quote of $1.2519-$1.2523.The "big figure," assumed to be known to all traders is ________.

Accepted Answer

The "big figure" is the first two digits of the quote, which in this case is 1.25. This is the number before the decimal point, so the correct answer is C, 1.25.

Question 7

It is common practice among currency traders worldwide to both price and trade currencies against the U.S.dollar.Consider a currency dealer who makes a market in 5 currencies against the dollar.If he were to supply quotes for each currency in terms of all of the others,how many quotes would he have to provide?

Accepted Answer

The dealer would need to provide quotes for each pair of the 5 currencies, which is calculated as 5 choose 2 (combinations of 5 currencies taken 2 at a time), resulting in 10 pairs. Since each pair can be quoted in two directions, the total number of quotes is 10 * 2 = 20. Additionally, he must provide quotes for each currency against the dollar, which is 5 quotes. Therefore, the total number of quotes is 20 + 10 = 30.

Question 8

The bid price

Accepted Answer

The bid price is the price at which a dealer (or market maker) is willing to buy a security. It represents the highest price that a buyer is willing to pay for a security. This is different from the asking price, which is the price at which a dealer is willing to sell a security.

Question 9

If the $/€ bid and ask prices are $1.50/€ and $1.51/€,respectively,the corresponding €/$ bid and ask prices are

Accepted Answer

To find the corresponding €/$ bid and ask prices, we need to take the reciprocal of the original bid and ask prices, respectively. Thus, the €/$ bid price is €1/$1.50=€0.6667 and the €/$ ask price is €1/$1.51=€0.6623. Therefore, the correct answer is choice C.

Question 10

Suppose you observe the following exchange rates: €1 = $1.60; £1 = $2.00.Calculate the euro-pound exchange rate.

Accepted Answer

To find the euro-pound exchange rate, divide the dollar-pound exchange rate by the dollar-euro exchange rate: £1 = $2.00 and €1 = $1.60, so £1 = $2.00 / $1.60 = €1.25.

Question 11

Suppose you observe the following exchange rates: €1 = $1.50; ¥120 = $1.00.Calculate the euro-yen exchange rate.

Accepted Answer

To calculate the euro-yen exchange rate, we need to first convert euro into dollars by using the given exchange rate of €1 = $1.50. Thus, €1 = $1.50. 
Next, we can use the given exchange rate of ¥120 = $1.00 to convert dollars into yen. Thus, $1 = ¥120. 
Combining these two conversion factors, we can find the euro-yen exchange rate:
€1 = $1.50 = ¥180 ($1.50 x ¥120)
Therefore, ¥1 = €0.00556 (1/180), which can be simplified to ¥1 = €0.0056 or €1 = ¥180. The correct answer is B.

Question 12

The AUD/$ spot exchange rate is AUD1.60/$ and the SF/$ is SF1.25/$.The AUD/SF cross exchange rate is ________.

Accepted Answer

To find the AUD/SF exchange rate, we need to multiply the AUD/$ exchange rate by the inverse of the SF/$ exchange rate. In other words,
AUD/SF = AUD/$ x (1/SF/$)
AUD/SF = 1.60 x (1/1.25)
AUD/SF = 1.28
Therefore, the AUD/SF cross exchange rate is 1.28. The answer is C.

Question 13

A dealer in pounds who thinks that the exchange rate is about to increase in volatility

Accepted Answer

A dealer who expects an increase in exchange rate volatility may widen their bid-ask spread to account for potential market movements and to ensure they do not face losses due to sudden price changes. Widening the spread can help to mitigate potential losses and maintain profitability. Therefore, the best choice would be option A, which suggests widening the bid-ask spread.

Question 14

+

Country	U.S. $ equiv.		Currency per U.S. $
	Tuesday	Monday	Tuesday	Monday
Britain (Pound) £62,500	2.0000	1.9800	0.5000	0.5051
1 Month Forward	2.0100	1.9900	0.4975	0.5025
3 Month Forward	2.0200	2.0000	0.4950	0.5000
6 Months Forward	2.0300	2.0100	0.4926	0.4975
12 Months Forward	2.0400	2.0200	0.4902	0.4950
Euro £62,500	1.5000	1.4800	0.6667	0.6757
1 Month Forward	1.5100	1.4900	0.6623	0.6711
3 Month Forward	1.5200	1.5000	0.6579	0.6667
6 Months Forward	1.5300	1.5100	0.6536	0.6623
12 Months Forward	1.5400	1.5200	0.6494	0.6579

Using the table shown,what is the spot cross-exchange rate between pounds and euro?

Accepted Answer

The answer of + ...

Question 15

Suppose you observe the following exchange rates: €1 = $1.50; £1 = $2.00.Calculate the euro-pound exchange rate.

Accepted Answer

To find the euro-pound exchange rate, divide the dollar-pound exchange rate by the dollar-euro exchange rate: £1 = $2.00 and €1 = $1.50, so £1 = $2.00 / $1.50 = €1.3333.

Question 16

In conversation,interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations.Consider a $/£ bid-ask quote of $1.2519-$1.2523.The currency dealer would likely quote that as ________.

Accepted Answer

Interbank foreign exchange traders commonly use the last two digits of the bid-ask quote when expressing spot currency quotations. Therefore, the bid-ask quote of $1.2519-$1.2523 would be shortened to 19-23.

Question 17

A dealer in British pounds who thinks that the pound is about to appreciate

Accepted Answer

The answer of A dealer in British pounds who thinks...

Question 18

It is common practice among currency traders worldwide to both price and trade currencies against the U.S.dollar.In fact,2013 BIS statistics indicate that about ________ of currency trading in the world involves the U.S.dollar on one side of the transaction.

Accepted Answer

According to the 2013 Bank for International Settlements (BIS) statistics, about 87 percent of currency trading in the world involves the U.S. dollar on one side of the transaction. This highlights the dominant role of the U.S. dollar in global finance and currency trading.

Question 19

In the Interbank market,the standard size of a trade among large banks in the major currencies is

Accepted Answer

In the interbank market, the standard size of trades among large banks in major currencies is typically for the U.S.-dollar equivalent of $10,000,000. This size reflects the large scale on which banks operate and trade currencies with each other.

Question 20

The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00.What is the euro-yen cross rate?

Accepted Answer

The euro-yen cross rate is the number of yen per euro. To find this, we can multiply the dollar-euro exchange rate by the dollar-yen exchange rate:€1.00 = $1.25$1.00 = ¥100Therefore, €1.00 = ¥100 * $1.25 = ¥125

Quiz 5: The Market for Foreign Exchange

Suppose the spot ask exchange rate,S^a($/£) ,is $1.90 = £1.00 and the spot bid exchange rate,S^b($/£) ,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?

Suppose you observe the following exchange rates: €1 = $1.25; £1 = $2.00.Calculate the euro-pound crossrate.

A dealer in British pounds who thinks that the pound is about to depreciate

Suppose you observe the following exchange rates: €1 = $1.45; £1 = $1.90.Calculate the euro-pound exchange rate.

In conversation,interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations.Consider a $/£ bid-ask quote of $1.2519-$1.2523.The "big figure," assumed to be known to all traders is ________.

The bid price

If the $/€ bid and ask prices are $1.50/€ and $1.51/€,respectively,the corresponding €/$ bid and ask prices are

Suppose you observe the following exchange rates: €1 = $1.60; £1 = $2.00.Calculate the euro-pound exchange rate.

Suppose you observe the following exchange rates: €1 = $1.50; ¥120 = $1.00.Calculate the euro-yen exchange rate.

The AUD/$ spot exchange rate is AUD1.60/$ and the SF/$ is SF1.25/$.The AUD/SF cross exchange rate is ________.

A dealer in pounds who thinks that the exchange rate is about to increase in volatility

Suppose you observe the following exchange rates: €1 = $1.50; £1 = $2.00.Calculate the euro-pound exchange rate.

In conversation,interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations.Consider a $/£ bid-ask quote of $1.2519-$1.2523.The currency dealer would likely quote that as ________.

A dealer in British pounds who thinks that the pound is about to appreciate

It is common practice among currency traders worldwide to both price and trade currencies against the U.S.dollar.In fact,2013 BIS statistics indicate that about ________ of currency trading in the world involves the U.S.dollar on one side of the transaction.

In the Interbank market,the standard size of a trade among large banks in the major currencies is

The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00.What is the euro-yen cross rate?

Quiz 5: The Market for Foreign Exchange

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?

Suppose you observe the following exchange rates: €1 = $1.25; £1 = $2.00.Calculate the euro-pound crossrate.

A dealer in British pounds who thinks that the pound is about to depreciate

Suppose you observe the following exchange rates: €1 = $1.45; £1 = $1.90.Calculate the euro-pound exchange rate.

In conversation,interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations.Consider a $/£ bid-ask quote of $1.2519-$1.2523.The "big figure," assumed to be known to all traders is ________.

The bid price

If the $/€ bid and ask prices are $1.50/€ and $1.51/€,respectively,the corresponding €/$ bid and ask prices are

Suppose you observe the following exchange rates: €1 = $1.60; £1 = $2.00.Calculate the euro-pound exchange rate.

Suppose you observe the following exchange rates: €1 = $1.50; ¥120 = $1.00.Calculate the euro-yen exchange rate.

The AUD/$ spot exchange rate is AUD1.60/$ and the SF/$ is SF1.25/$.The AUD/SF cross exchange rate is ________.

A dealer in pounds who thinks that the exchange rate is about to increase in volatility

Suppose you observe the following exchange rates: €1 = $1.50; £1 = $2.00.Calculate the euro-pound exchange rate.

In conversation,interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations.Consider a $/£ bid-ask quote of $1.2519-$1.2523.The currency dealer would likely quote that as ________.

A dealer in British pounds who thinks that the pound is about to appreciate

It is common practice among currency traders worldwide to both price and trade currencies against the U.S.dollar.In fact,2013 BIS statistics indicate that about ________ of currency trading in the world involves the U.S.dollar on one side of the transaction.

In the Interbank market,the standard size of a trade among large banks in the major currencies is

The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00.What is the euro-yen cross rate?

Suppose the spot ask exchange rate,S^a($/£) ,is $1.90 = £1.00 and the spot bid exchange rate,S^b($/£) ,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?