10 Questions
What is the result of multiplying the $/£ bid-ask prices and the €/$ bid-ask prices?
1.19647
What is the reciprocal of Sb(€/£)?
.8358
What is the €/£ bid-ask spread?
€0.00099
What is the £/€ bid-ask spread?
£0.0007
Why do cross-exchange rates implicitly incorporate bid-ask spreads?
Because the trade is effectively going through the dollar
What is the implication of the cross-exchange rate bid-ask spreads being larger than the American or European bid-ask spreads?
The cross-exchange rate incorporates the bid-ask spreads of the two transactions
What is the role of the dollar in cross-exchange rates?
It is the intermediary currency for cross-exchange rates
What is the relationship between the €/£ bid-ask spread and the €/$ bid-ask spread?
The €/£ bid-ask spread is larger
What is the purpose of Exhibit 5.9?
To provide a detailed presentation of cross-rate foreign exchange transactions
What is the significance of the cross-exchange rate bid-ask spreads being larger than the American or European bid-ask spreads?
It implies that cross-exchange rates incorporate the bid-ask spreads of the two transactions
Study Notes
Exchange Rates
- Exchange rates are provided for various countries and currencies, including the US dollar, euro, and others.
Country/Currency Exchange Rates
- Czech Rep. koruna: 21.666 per US dollar
- Denmark krone: 6.6708 per US dollar
- Euro area euro: 1.1235 per US dollar, with 1-month, 3-month, and 6-month forward rates
- Hungary forint: 316.19 per US dollar
- Norway krone: 8.8963 per US dollar
Poland and Russia Exchange Rates
- Poland zloty: 4.0791 per US dollar
- Russia ruble: 77.312 per US dollar
Sweden and Switzerland Exchange Rates
- Sweden krona: 9.3230 per US dollar
- Switzerland franc: 1.0785 per US dollar, with 1-month, 3-month, and 6-month forward rates
Turkey and UK Exchange Rates
- Turkey lira: 13.304 per US dollar
- UK pound: 1.3447 per US dollar, with 1-month, 3-month, and 6-month forward rates
Middle East/Africa Exchange Rates
- Bahrain dinar: 2.6527 per US dollar
- Egypt pound: 15.722 per US dollar
- Israel shekel: 3.559 per US dollar
- Jordan dinar: 1.4105 per US dollar
- Kuwait dinar: 3.3002 per US dollar
- Nigeria naira: 0.00241 per US dollar
- Saudi Arabia riyal: 3.7583 per US dollar
- South Africa rand: 0.0650 per US dollar
- UAE dirham: 3.7519 per US dollar
Cross-Exchange Rates
- Cross-exchange rate is an exchange rate between two currencies where neither is the US dollar.
- Can be calculated from US dollar exchange rates for the two currencies, using either European or American term quotations.
- S(j/k) = S($/k) × S(j/$) and S(k/j) = S(k/$) × S($/j)
Calculating Cross-Exchange Rate
- Bid-ask spread can be calculated from the exchange rates.
- Example: €/£ bid-ask prices are €1.19647 to €1.19746 and the £/€ bid-ask prices are £0.8351 to £0.8358.
- Cross-exchange rate bid-ask spreads are larger than American or European bid-ask spreads.
This quiz covers exchange rates for various countries and their corresponding currencies. It includes rates for Denmark, Euro area, Hungary, Norway, Poland, and Russia.
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