土豆妮

The three-month forward rate for the Byzantine solidus (BYZ) against the Venetian ducat (VEN) is quoted as 11.98 – 12.03 VEN/BYZ. The bid-ask spread on the direct quote to a Byzantine investor is closest to:

A) 0.0003 BYZ/VEN

B) 0.05 VEN/BYZ

C) 0.05 BYZ/VEN

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The direct quote for a Byzantine investor is BYZ/VEN. The bid and ask quotes are 1 / 11.98 = 0.0834 BYZ/VEN and 1 / 12.03 = 0.0831 BYZ/VEN. The spread is 0.0834 ? 0.0831 = 0.0003 BYZ/VEN.

土豆妮

Assume that the USD/GBP six-month forward rate is quoted at a bid of 1.72546 and an ask of 1.72776. What is the spread on the indirect quote for a U.S. dealer?

A) 0.000772 USD/GBP.

B) 0.002300 USD/GBP.

C) 0.000772 GBP/USD.

土豆妮

Assume that the USD/GBP six-month forward rate is quoted at a bid of 1.72546 and an ask of 1.72776. What is the spread on the indirect quote for a U.S. dealer?

A) 0.000772 USD/GBP.

B) 0.002300 USD/GBP.

C) 0.000772 GBP/USD.

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For an indirect quote, the bid and ask prices must be converted to GBP/USD. This is accomplished by taking the reciprocal of each and then subtracting the bid from the ask price.

1 / 1.72546 USD/GBP = 0.579556 GBP/USD
1 / 1.72776 USD/GBP = 0.578784 GBP/USD

The spread is 0.578784 ? 0.579556 = 0.000772 GBP/USD

土豆妮

Which of the following statements best describes a six month forward foreign currency spread? The six month forward foreign currency spread:

A) is the same as the spot spread.

B) tends to be smaller than the spot spread.

C) tends to be larger than the spot spread.