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?

Question

Quizplus · Accepted Answer

The dealer needs to provide quotes for each pair of the 5 currencies, which is a combination problem. The number of ways to choose 2 currencies from 5 is calculated as 5 choose 2, which is 10. Since each pair can be quoted in two directions (e.g., currency A to B and B to A), the total number of quotes is 10 * 2 = 20. Additionally, each currency is also quoted against the dollar, adding 5 more quotes. Therefore, the total number of quotes is 20 + 10 = 30.

It Is Common Practice Among Currency Traders Worldwide to Both