Banco Herrero wants to make a bid-ask spread of 0.55 percent on its foreign exchange transactions. If the ask rate on the Mexican peso (MP) is MP10.4192/$, what does the bid rate have to be? (Do not round your intermediate calculation. Round your final answer to four decimal places.)

Question

Quizplus · Accepted Answer

To find the bid rate when the ask rate and the bid-ask spread percentage are given, you can use the formula: Bid Rate = Ask Rate / (1 + Spread Percentage). Here, the ask rate is MP10.4192/$, and the spread percentage is 0.55%, or 0.0055 in decimal form. So, the bid rate = MP10.4192 / (1 + 0.0055) = MP10.4192 / 1.0055 ≈ MP10.3619/$.

Banco Herrero Wants to Make a Bid-Ask Spread of 0