Question 1

In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.9072-$1.9077. The "big figure", assumed to be known to all traders is _____.

Accepted Answer

The "big figure" is the first two digits of the quote. In this case, it is 1.90.

Question 2

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 3

The Bid price

Accepted Answer

The bid price is the price at which a dealer or trader is willing to purchase a security or asset.

Question 4

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

Accepted Answer

To calculate the AUD/SF cross exchange rate, we need to find the value of 1 SF in AUD. This can be found by dividing 1 by the SF/$ exchange rate: 1/1.25 = 0.8 AUD. Therefore, the AUD/SF cross exchange rate is the reciprocal of the SF/AUD exchange rate: 1/0.8 = 1.25 SF/AUD. Rounded to four decimal places, this is 0.8000 AUD/SF.

Question 5

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 6

In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.9072-$1.9077. The currency dealer would likely quote that as _____.

Accepted Answer

The interbank foreign exchange traders use the last two digits of the bid and ask prices to express spot currency quotations. Therefore, $1.9072-$1.9077 would be quoted as 72-77.

Question 7

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

Accepted Answer

The answer of Suppose you observe the following exchange rates:...

Question 8

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

Accepted Answer

The standard size of a trade among large banks in the major currencies is typically $10,000,000. This size may vary depending on the currency and the banks involved, but $10 million is a commonly used benchmark.

Question 9

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

Accepted Answer

A dealer who anticipates a depreciation of the pound may lower both the bid and ask prices to reduce inventory risk and encourage selling before the currency loses value.

Question 10

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 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.

Question 11

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

Accepted Answer

A dealer who thinks that the exchange rate is about to increase in volatility may want to widen his bid-ask spread to account for potential price fluctuations and minimize the risk of losses. This allows the dealer to earn a higher profit margin while still offering competitive prices to customers. Decreasing the bid-ask spread or lowering the ask price would increase the dealer's risk exposure and potentially result in lower profits.

Question 12

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

Accepted Answer

The correct answer is A because:1 euro = 1.50 US dollars120 yen = 1.00 US dollarsTherefore, 1 euro = 120 yen / 1.50 US dollars = 80 yenSo, 1 euro = 80 yen / 0.60 euro = 133.33 yen

Question 13

What is the ASK cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will take in euro to sell Swiss francs.

Accepted Answer

The ASK rate is the price at which a dealer sells a currency. The given rate of €0.5466/CHF is the ASK rate for Swiss Francs priced in euro.

Question 14

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

Accepted Answer

To calculate the euro-pound exchange rate, we need to use the cross-rate calculation method. 
First, we convert the pound to euros using the pound-dollar exchange rate: £1 = $2.00. So, £1 = €1.3333 (since €1 = $1.50). 
Therefore, the euro-pound exchange rate is €1.3333 = £1.00.

Question 15

Find the no-arbitrage cross exchange rate. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00.

Accepted Answer

To find the no-arbitrage cross exchange rate between the euro and the pound, we first convert each currency to a common base, in this case, the dollar. Given $1.60 = €1.00, it means €1.00 = $1.60. Similarly, given $2.00 = £1.00, it means £1.00 = $2.00. To find how many euros are equivalent to one pound, we divide the dollar-pound rate by the dollar-euro rate: $2.00 / $1.60 = €1.25. Therefore, the no-arbitrage cross exchange rate is €1.25/£1.00.

Question 16

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

To find the euro-yen cross rate, multiply the dollar-euro rate by the dollar-yen rate: $1.25/€1.00 * ¥100/$1.00 = ¥125/€1.00.

Question 17

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

To determine the spread cost, we need to calculate the difference between the ask price and the bid price, which is:

Ask Price - Bid Price = $1.90 - $1.89 = $0.01

This means that for every £1.00 we buy, we will pay an extra $0.01 in spread cost.

If we buy $10,000,000 worth of British pounds, we need to convert this amount to pounds using the ask exchange rate:

$10,000,000 ÷ $1.90/£1.00 = £5,263,157.89

We will then sell the pounds using the bid exchange rate:

£5,263,157.89 x $1.89/£1.00 = $9,999,999.99

The difference between our initial investment and final return is:

$10,000,000 - $9,999,999.99 = $0.01

This shows that we only lost $0.01 due to the bid-ask spread. To determine the percentage spread, we can divide the spread cost by the initial investment:

$0.01/$10,000,000 x 100% = 0.0001%

Therefore, the "eaten" amount is $52,631.58.

Question 18

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

The BID cross-exchange rate is the rate at which a dealer is willing to buy the base currency (CHF) in terms of the quote currency (EUR). The lowest rate among the given options is €0.5386/CHF, which represents the BID price.

Question 19

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 $/€ bid and ask prices. The reciprocal of $1.50/€ is €0.6667/$ and the reciprocal of $1.51/€ is €0.6623/$. Therefore, the corresponding €/$ bid and ask prices are €0.6623 and €0.6667.

Question 20

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

Accepted Answer

€1 = $1.25 and £1 = $2.00. So, €1 = £1.60.

Quiz 5: The Market for Foreign Exchange

In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.9072-$1.9077. The "big figure", assumed to be known to all traders is _____.

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

The Bid price

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

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

In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.9072-$1.9077. The currency dealer would likely quote that as _____.

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

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

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

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; ¥120 = $1.00. Calculate the euro-pound exchange rate.

What is the ASK cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will take in euro to sell Swiss francs.

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

Find the no-arbitrage cross exchange rate. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00.

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?

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.

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 = $1.25; £1 = $2.00. Calculate the euro-pound exchange rate.

Quiz 5: The Market for Foreign Exchange

In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.9072-$1.9077. The "big figure", assumed to be known to all traders is _____.

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

The Bid price

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

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

In conversation, interbank foreign exchange traders use a shorthand abbreviation in expressing spot currency quotations. Consider a $/£ bid-ask quote of $1.9072-$1.9077. The currency dealer would likely quote that as _____.

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

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

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

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; ¥120 = $1.00. Calculate the euro-pound exchange rate.

What is the ASK cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will take in euro to sell Swiss francs.

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

Find the no-arbitrage cross exchange rate. The dollar-euro exchange rate is quoted as $1.60 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00.

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, 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?

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.

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 = $1.25; £1 = $2.00. Calculate the euro-pound exchange 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?