chunty

Which of the following statements about foreign currency bid-ask spreads is least accurate? Foreign currency bid-ask spreads:

A) are not directly affected by bank and currency dealer positions.

B) decrease as the size of the transaction decreases.

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.

chunty

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

chunty

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) 1.0050% Bank

C) 0.9950% 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.

chunty

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%

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) 0.0858%.

B) 0.0847%.

C) 0.0816%.

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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

chunty

Today’s spot CAD bid exchange rate is EUR:CAD 1.425 and the ask exchange rate is EUR:CAD 1.435. The percent spread is closest to:

A) 0.697%.

B) 0.702%.

C) 0.489%.

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The percentage spread is the same irrespective of how the quote is made. The percentage spread is calculated as: (1.435 − 1.425) / 1.435 × 100 = 0.697%

chunty

A foreign currency is quoted at $1.5558 - 70. The percentage spread is closest to:

A) 0.07707%.

B) 0.00120%.

C) 0.07713%.

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

chunty

If the exchange rate is USD:JPY 120, a bottle of rice wine that costs JPY2,400 costs:

A) USD 24.

B) USD 20.

C) USD 200.

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If one USD buys 120 JPY, 20 USD buys 2,400 JPY, which is the price of the bottle of wine.

invic

Given an indirect quote of GBP:CHF 2.2254, what is the direct quote?

A) CHF:GBP 4.4940.

B) CHF:GBP 0.0449.

C) CHF:GBP 0.4494.

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CHF:GBP 0.4494 is the reciprocal of GBP:CHF 2.2254.

invic

In the U.S., the indirect quote of USD:EUR 0.827541 is the equivalent of a direct quote of:

A) EUR:USD 0.0012.

B) EUR:USD 1.2084.

C) EUR:USD 0.1208.

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EUR:USD 1.2084 is the reciprocal of USD:EUR 0.827541.