Bid Ask question forward, exactly, exchange, question, percentage

chunty

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%

What does it mean exactly for "a direct quote for euros", does it mean a direct quote for Europeans, which would mean # of EUROS per USD, or a direct quote for US investors, which would be # of USD Per euros

I am so confused. it 's a simple question if I knew what the question was asking for.

Thanks



Edited 1 time(s). Last edit at Friday, May 21, 2010 at 08:25PM by vinniepaz730.

ap0258

(1.2112-1.2102)/1.2112. = 0.0826%

how do you come up with C?

xilinx_altera

(0.82631-0.82563)/0.82631 = 0.08256 . Still B

yodacaia

Yes, I think vinnie is mixing the direct-indirect issue with the spread percentage.

comp_sci_kid

Here ya go..


Your answer: C was correct!

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.

benbenxiong

Err its cuz they rounded it, thats it. so stpuid.

random_walker47

Exact answer is 0.082667%, no where near 0.0847%. Don't use this test services provider anymore!