Reading 18: Currency Exchange Rates-LOS a, (Part 1)习题精选 center, methods, foreign, exchange, 2010

土豆妮

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

LOS a, (Part 1): Define direct and indirect methods of foreign exchange quotations.

 

 

 

The spot exchange rate is USD 0.50 per Alpha. A U.S. importer wants to buy stuffed toys for a total amount of 6 million Alphas. The USD equivalent cost is:

A) USD 12,000,000.

B) USD 3,000,000.

C) Alpha 3,000,000.

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土豆妮

If the bid is $1.8709/GBP and the ask is $1.8841/GBP, what is the bid?ask spread in GBP/USD?

A) 0.5345 ? 0.5407.

B) 0.5308 ? 0.5345.

C) 1.8841 ? 1.8709.

土豆妮

If the bid is $1.8709/GBP and the ask is $1.8841/GBP, what is the bid?ask spread in GBP/USD?

A) 0.5345 ? 0.5407.

B) 0.5308 ? 0.5345.

C) 1.8841 ? 1.8709.

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The bid-ask spread in European terms is foreign currency per dollar (FC/$) so you are being asked to convert the bid?ask spread to GBP/$. To convert to GBP/$ just take the reciprocal of each number and reverse the bid?ask spread.

1 / ($1.8709/GBP) = 0.5345 GBP/$ and 1 / ($1.8841/GBP) = 0.53076 GBP/$. The bid?ask spread is now 0.5308 ? 0.5345.

土豆妮

If the indirect quote for U.S. dollars in Sydney is 0.7927, what is the equivalent indirect quote in New York City for Australian dollars?

A) 1.2615.

B) 0.3964.

C) 0.7927.

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Indirect quotes are foreign currency per domestic currency or FC/DC. An indirect quote in Sydney for USD of 0.7927 means 0.7927USD/AUD which equals an indirect quote in New York City of 1AUD/0.7927USD = 1.26AUD/USD.

土豆妮

An indirect quote for pesos to a $U.S. investor is 8.00-8.50. If you have $100, how many pesos will you be able to buy?

A) 11.8.

B) 850.

C) 800.

土豆妮

An indirect quote for pesos to a $U.S. investor is 8.00-8.50. If you have $100, how many pesos will you be able to buy?

A) 11.8.

B) 850.

C) 800.

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Use the following steps to calculate this result:

Step 1: Put the quote in direct terms. (Remember: The bid will become the ask and the ask will become the bid).

Bid: 1.00000 / 8.50000_peso/$ = 0.11765_$/peso

Ask: 1.00000 / 8.00000_peso/$ = 0.12500_$/peso

Step 2: Calculate how many pesos can be purchased for $100.00

Since we are buying pesos, we have to buy at the ask price of 0.12500_$/peso. 100.00000_$ / 0.12500_$/peso = 800_pesos.

Alternate method:

For the examination, remember that the bank must make its profit through the bid-ask spread (the foreign-exchange market is typically transaction-fee free), so you will always buy at the "high" price and sell at the "low price." Here, the "high" price is 8.00000_peso/$ (At 8.00000_peso/$ the peso is worth more than at 8.50000_peso/$).

100.00000_$ × 8.00000_peso/$ = 800.00000_peso

土豆妮

$0.555/GBP is:

A) a direct quote in Great Britain.

B) an indirect quote in Great Britain.

C) an indirect quote in the U.S.

土豆妮

$0.555/GBP is:

A) a direct quote in Great Britain.

B) an indirect quote in Great Britain.

C) an indirect quote in the U.S.

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In country X, an indirect quote is foreign currency over domestic currency, or FC/DC_X.  The quote 0.55500_$/GBP is FC/DC (or indirect) to an investor in Great Britain and DC/FC (or direct) to an investor in the United States.