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

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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%.

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

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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.

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

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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.

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

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Given a foreign currency quotation bid of $0.8955 and an ask of $0.9045 what is the percentage bid-ask spread, and who profits from it?

% Bid-AskSpread

Profits?

A) 0.9950% Customer

B) 0.9950% Bank

C) 1.0050% Bank

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

= [(0.9045 ? 0.8955) / 0.9045 ] × 100 = 0.9950%

The bid-ask spread is how banks make their profit on foreign currency transactions.

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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.

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

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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.

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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.

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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%.

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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.

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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.

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

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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%.

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

(0.9400 ? 0.9350) / 0.9400 × 100 =

(0.005 / 0.9400) × 100 = 0.5319%

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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%.

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