Schweser question 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%. In the absence of direction, when should the bid, midpoint or ask be used in the denominator?

C Isn’t this a direct quote for USD and question is asking about direct quote in Euro?

The base/counter gets me…need to remember that EUR:USD is a direct quote in USD. So…started with B, but not sure if it holds true if EUR direct quote is the same? FYI – I edited, re-edited and the edited again. Back to studies.

They have provided EUR:USD -> USD/EUR -> Direct quote for USD. So Direct quote for EUR would mean: 1/1.2112 - 1/1.2102 = 0.8256 - 0.8263 So spread = (0.8263 - 0.8256)/0.8263 = 0.0847% choice C but if you do not limit it to 4 decimal places you get Choice B.

B for Mexico?

1st one- this is retarded of me, but can you do it out for me? why am i getting the wrong answer here? i flipped the quote and still get B. have i lost my mind? i think the answer to that might be yes.

Direct for euro is DC/FC so euro is DC (1.2112-1.2102)/1.2102 = .0008263 (ask - bid)/ask B

0.008263 is what you get when you do not limit your decimal places to 4 or 5. But if you do, you get answer 0.0847%

Re: bid ask spread denominator new Posted by: cpk123 (IP Logged) [hide posts from this user] Date: May 3, 2009 07:43PM They have provided EUR:USD -> USD/EUR -> Direct quote for USD. So Direct quote for EUR would mean: 1/1.2112 - 1/1.2102 = 0.8256 - 0.8263 So spread = (0.8263 - 0.8256)/0.8263 = 0.0847% choice C but if you do not limit it to 4 decimal places you get Choice B. CP thank you. i have my calc set on 6 decimals. i took the reciprocal, no tricking me there… it’s just a rounding issue. with that in mind- does the CFAI recommend any number of places? 4? I can set my calc to whatever… I tend to go more rather than less but apparently it burned me here?

don’t worry banni…there won’t be that close options

schweser has the answer as C – so there’s something for you. I do not limit the # of decimal places - and have set my calc to full floating (9).

i get B for the 2nd question

9 decimals? damn man, you are dorky.

B) MXN/PEN 2.61127 - 2.62867

calculator was so 2008. we have 3 minutes for this question. take out that scrap paper and start chugging away.

cpk was correct on both questions. Nice job.