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?
ask - bid / ask = answer B
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.
Thanks. How about the Schweser question below. In the answer explanation, the 0.32896 MXN/PEN seems like it should be 0.32896 PEN/MXN because they inverse the ratio to get MXN/PEN on the very next line: Question ID#: 89058 Given P the direct quotes in U.S. dollars for the Mexican peso (MXN) and the Peruvian nuevo sol (PEN), determine the MXN/PEN bid-ask cross rates. Select the closest correct answer. USD/MXN Bid/Ask: 0.11001 - 0.11036 USD/PEN Bid/Ask: 0.28818 - 0.28918 A) MXN/PEN 2.62890 - 2.64630 B) MXN/PEN 2.61127 - 2.62867 C) MXN/PEN 0.38300 - 0.38554 -------------------------------------------------------------------------------- Click for Answer and Explanation We recommend using the following “Bid-Ask Matrix Method” to calculate the bid and ask quotes: Step 1: Put the bid-ask quotes into a matrix. Use direct quotes in the common currency. Currency Bid Ask MXN 0.11001 0.11036 PEN 0.28818 0.28918 Step 2: “Divide Out” the diagonals and take the reciprocal. Remember that the quotes are direct quotes for a USD investor. (Remember to put MXN in the numerator - because MXN is in the numerator of the quote we are asked to calculate.) MXNBid / PENAsk = 0.11001 USD/MXN / 0.28918 USD/PEN = 0.38042 PEN/MXN, 1 / 0.38042 PEN/MXN = 2.62867 MXN/PEN MXNAsk / PENBid = 0.11036 USD/MXN / 0.28818 USD/PEN = 0.38296 MXN/PEN, 1 / 0.38296 PEN/MXN = 2.61127 MXN/PEN Step 3: Quote : The MXN/PEN Bid-Ask is: (Note: The lower number from Step 2 is the bid, the higher number is the ask.) MXN/PEN 2.61127 to 2.62867
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.