FX Quotes

Kapie

This is doing my head in:

EUR:USD 0.9959- 0.9960

Right so this means you can buy 1 USD for €0.9960 and Sell 1 USD for €0.9959.

So if you have 1 euro and want to buy dollars you would get $0.9960. On the flip side if you have $0.9959 and want EUROs you would divide by 0.9959 and get 1 Euro. Right?

Now in a question involving a US investor investing in a European company how does it all work? Let's say at the beginning of the investment the price was €40 and it paid a div of €0.5 and you bought 1000 shares.

When you come to sell it the FX rate is:

EUR:USD 0.9965- 0.9968

Which rates do you use and most importantly why, for calculating USD returns?

Thanks

ayodayo

Janakisri:

converting back to dolars would use the bid in the EUR:USD quotes (.9965) so the final return would be 40500 * .9965 = 40358

and the total gain would be 40358/39840 - 1 = 1.3% return

This is a tricky Q b/c they don't start with a $ amount so you need to work backward first to find the original investment from the investor, then work forward to find the end result.

The rule that I use is if you posses the Base currency(first currency, ie EUR is EUR:USD) then multiply by the bid, if you posses the second currency then divide by the ask.
Using that logic Mambovipi, if you have 1 EUR you can buy 1*.9959 dollars, or if you have 1 USD then you can exchange for 1/.9960 EUR

ap0258

Well i always use this concept in my head for FX quotes.
Pay more get less (i.e. the investor always loses )
so if the quote is
EUR:USD 0.9959- 0.9960 it means pay more (.9960$ to get a Euro) and get less (pay a euro and get only USD 0.9959).

Have this in your head all the time and you will do well in any FX problem.

busterbluth

Sell dollars and buy 40000 Euros at 0.9960 $ per Euro = $39,840
Dividends = 0.5 * 1000 = 500 Euros
Price Appreciation of stock = 0
Net = 4000+500 = 40500 Euros
Sell the stock and realize 40500 Euros total.
Buy Dollars at 0.9968 $ per Euro

40500/0.9968 = 40630

Gain = 40630/39840 -1 = 1.98%