cross rate with bid-ask spreads Schweser p. 313 cross, currency, selling, because

svgleeson

hello,
Could anyone help to explain what the bullet points are telling us? I am confused at:
1) is this from a market maker or market taker perspective?
2) why is the first bullet point a bid “because you are selling the base currency”?
3) and if AUD is the base currency, shouldnt the pair written MXN:AUD, rather than AUD:MXN?
thanks for your help!
Suny

yodacaia

Very helpful. Many thanks!

ayaz_mahmud369

1) Bid/Ask rates are ALWAYS quoted from the Dealer’s (or market maker’s) perspective. Bid rate is at which Dealer can Buy the underlying from you and Ask rate is at which Dealer is willing to sell it to you.
2)So, if you want to sell the currency, dealer will be buying it from you and hence the Bid Rate quotation will apply.
3)Dont get confused by implication of Base Currency. Its significance is only to the extent of how you are quoting rates in a pair and thats it. Usually by convention, in most currency pairs involving USD, USD is the base currency, except when it is quoted against GBP, EUR, AUD and NZD (i think) currencies. Again, it does not mean anything, the underlying rates do not change, they simply get reversed with reversal of base currency in that pair.
And for cross currencies, where USD is not present in the pair, currency in the denominator becomes the base currency. Again, base currency does not have any particular significance in itself. If you reverse the currency (that is change the base currency to contra currency), simply reverse the quoted rate and that is all.
Hope it helps.