Reading 18: Currency Exchange Rates-LOS b 习题精选 center, foreign, currency, interpret, 2011

土豆妮

Session 4: Economics for Valuation
Reading 18: Currency Exchange Rates

LOS b: Calculate and interpret the spread on a foreign currency quotation, and explain how spreads on foreign currency quotations can differ as a result of market conditions, bank/dealer positions, and trading volume.

 

 

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

A) 0.00120%.

B) 0.07713%.

C) 0.07707%.

---

 

Percent spread = [(Ask price – Bid price)/Ask price] × 100
Percent spread = [(1.5570 – 1.5558)/1.5570] × 100 = 0.07707%

土豆妮

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

A) 0.697%.

B) 0.702%.

C) 0.489%.

---

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 × 100 = 0.697%

土豆妮

Assume that the EUR:USD six-month forward exchange rate is quoted at 1.2102 ? 1.2112. What is the bid-ask spread as a percentage of the ask price based on a direct quote for euros?

A) 0.0848%.

B) 0.0826%.

C) 0.0847%.

---

Our quote is in terms of the number of dollars per euro, and a direct quote for euros is the number of euros per dollar. So, we must invert the rates given to get USD:EUR = 0.8256 ? 0.8263. The spread is the difference between the bid and the ask or 0.8263 ? 0.8256 = 0.0007. The spread as a percent of the ask price is (0.0007 / 0.8263) or 0.0847%. Rounding is per market convention.

土豆妮

Because of the uncertainty involved in forward contracts, dealers will quote bid-ask spreads on longer-term forward contracts that are:

A) narrower.

B) wider.

C) shorter.

---

The further into the future the quote, the more volatile the price, and the wider the spread.

土豆妮

A bank in the U.S. is quoting a bid of CAD:USD 0.9350 and an ask of CAD:USD 0.9400. For a direct U.S. quote, what is the percentage spread?

A) 0.5319%.

B) 5.5500%.

C) 0.0053%.

---

% spread = (ask price ? bid price) / ask price × 100

(0.9400 ? 0.9350) / 0.9400 × 100 =

(0.005 / 0.9400) × 100 = 0.5319%

土豆妮

Suppose the spot CHF:USD exchange rate quotation is 0.7910 - 0.7917. The percentage bid-ask spread on the USD is:

A) 0.0884%.

B) 0.0007%.

C) 8.8840%.

---

The bid-ask spread = [(0.7917 ? 0.7910) / 0.7917] × 100 = 0.0884%

土豆妮

A bid-ask spread on a foreign currency will be narrower the:

A) more actively traded the currency and the smaller the transaction.

B) less actively traded the currency and the smaller the transaction.

C) more actively traded the currency and the larger the transaction.

---

The more actively a currency is traded, and the larger the transaction, the narrower the spread.

土豆妮

Which of the following will cause a currency's bid-ask spread to widen? The:

A) bid-ask spread is for a small transaction rather than a large one.

B) government has recently become more stable.

C) bid-ask spread is a spot quote rather than a forward quote.

---

The bid is the price at which the bank will buy foreign currency, and the ask is the price at which the bank will sell foreign currency. The more actively a currency is traded, the narrower the spread. Forward spreads are wider than spot spreads. The smaller the transaction size, the wider the spread. The greater the exchange-rate volatility, the greater the bid-ask spread.

土豆妮

Which of the following statements about foreign currency bid-ask spreads is least accurate? Foreign currency bid-ask spreads:

A) decrease as the size of the transaction decreases.

B) are not directly affected by bank and currency dealer positions.

C) are a function of transaction volume and volatility.

---

Bid-ask spreads are size related in that the smaller the transaction the larger the spread.

土豆妮

The percentage spread between foreign currency quotations is equal to the:

A) ask price minus the bid price divided by the ask price multiplied by 100.

B) ask price minus the bid price divided by the bid price multiplied by 100.

C) ask price divided by the bid price.

---

% spread = [(ask price – bid price) / ask price] × 100