bid ask denominator ask, percentage, exchange, getting

d2rockstar

Q:Today's spot NCD:USD ask exchange rate is .6010 and the bid is 0.60000. What is the percentage spread on the USD?

Trying to figure out when to use the bid or ask in the denominator. What are they getting at when they say "on the USD"?

firat

I had to explain this type of problem in my study group yesterday. The book provides a great way to simplify all the cross rate problems in 2 steps:

1) Determine your common currency then form the problem so that it eliminates it

Example:
USD:Sfr = 2-3
USD:￥ = 100-150
Solve for SFr:￥

Solution:
USD is the common currency
We want Sfr in the numerator and ￥ in the denominator
So,
(USD:￥)/(USD:SFr) = (SFr/USD) * (USD/￥) = SFr/￥

2) Remember your Bid is the smallest possible number (and your ask is the largest possible
number.

Lets solve for the bid:
To get the smallest value, we need to have the smaller number in the numerator and the
larger in the denominator. Remember: ￥ is ultimately our denominator. Don't get confused!
Formula: (USD:￥)/(USD:SFr) - NOTE: We discovered this in step 1

SFr:￥ (bid) = (USD:￥)/(USD:Sfr) = 100/3 = 33.33

Try working through the problem for the ask. Remember, the ask is the largest possible
value.

Hope that helps clarify!

benbenxiong

From my readings, you always use the ask to determine % spread.

It doesn't matter if you convert NCD:USD to USD:NCD. The % spread will remain the same. The ask is always the denominator. Your answer is .166%.

senlinlang

Pgiger, i like your method. Its lot easier than CFAI text. But i have confusion over your notations.


"Solve for SFr:￥

"We want Sfr in the numerator and ￥ in the denominator"


I read as per CFAI, the quoting convention is SFr:Yen means price of one SFr in Yen( number of Yen per Sfr). = Yen per Sfr,
= Yen/Sfr i.e Yen is in numerator and SFr in denominator. Correct me if i am wrong.

Cheers

BelalM

+1 on jblamb's answer ; .01/.6010

cv4cfa

Also, to cfaFour, you are right, in the instance of SFr:Yen, yen is numerator.

SFr:Yen = 33.3 - 75

means this:
I will have to pay 75 yen if I want to get an SFr
If I want to sell an SFr tho, I will only get 33.3 Yen for it.

I have never heard of a currency ever having a spread this large, but w/e.