Reading 18- LOS b (part 1) ～ Q1－3

1.Assume that the EUR/USD six-month forward exchange rate is quoted at 0.82556 – 0.82633. From a European dealer’s perspective, what is the bid-ask spread as a percentage of the ask price based on a direct quote?

A)   0.0932%.

B)   0.0009%.

C)   0.0933%.

D)   0.0770%.

The correct answer was A)

The spread is the difference between the bid and the ask or 0.82633 – 0.82556 = 0.00077. The spread as a percent of the ask price is (0.00077/0.82633) or 0.0932 percent.

2.Today’s spot CAD bid exchange rate is 1.425 CAD/EUR and the ask exchange rate is 1.435 CAD/EUR. The percent spread is closest to:

A)   0.697%.

B)   0.702%.

C)   0.489%.

D)   0.500%.

The correct answer was A)

The percentage spread is the same irrespective of how the quote is made. The percentage spread is calculated as: (1.435-1.425)/1.435 x 100 = 0.697%

3.A foreign currency is quoted at $1.5558 - 70. The percentage spread is closest to:

A)   0.07713%.

B)   0.07707%.

C)   0.00120%.

D)   0.01200%.

The correct answer was B)

Percent spread = [(Ask price – Bid price)/Ask price] x 100
Percent spread = [(1.5570 – 1.5558)/1.5570] x 100 = 0.077%