OK, so this is driving me nuts. Anyone who has taken the BSAS mock, did you find that #17 was wrong? Without posting copyrighted material, I’ll attempt to paraphrase: "The X/Y exchange rate is quoted at 1.234/1.246. What is the spread for the indirect quote in country X? Here is the way I tackled this question, someone PLEASE tell me where I went wrong: Ok, so the rate is in X/Y, so it’s a direct quote in country X. In order to get the indirect quote in country X, I took the reciprical of each and made the bid the ask and the ask the bid. So for the made up numbers above, that would equate to an indirect quote in country X of .80256/.81037. With me so far? Then the spread is simply (ask-bid) / ask. Simple, right? Level I stuff. It says I was WRONG, and the the right answer is to take 1.246-1.234/1.246, which in this case would be .009. How is that a spread for the indirect quote?? Isn’t that the spread for the DIRECT quote? Am I going crazy? Any help is appreciated.
^ bump out of sheer desperation for help on this
it is still the same… no matter how you do it…
agreee. should be the same since it is a percentage of the ask rate. just remember to reverse the bid and ask after calculating the reciprocals of the direct quotes.
i did the question… i got the correct answer… it is the same… maybe you were rounding to little decimal places
The answer choices were all very similar, but were different in the 4th decimal place. When you do the formula as stated above, you get a different anwer than the one they chose. The real numbers: $/E quote: 1.412/1.415 Answer choices for indirect quote in US: a) .21201% b) -.21201% c) .21246% d) -.21246% Which one would you choose?
A
Right. But if you did it the other way, i.e. the reciprocal, you’d get a different answer, which leads me back to my original question, which is why wouldn’t you take the reciprical to get the indirect quote?
i did use the reciprocal…i got A here’s a trick…if decimals are very close…what I do …is use the 1/x function and memory function on my calc…i do not round…I take all the decimals the calculator provides… that way there’s no doubt…
Hmmn…I must be doing something else wrong, 'cause I use that trick too and I still got C. I might have to chalk this up to a mystery that I will never solve. Anyway, thanks for your help.
Bid 1.412 1/x = 0.70821530 Ask 1.415 1/x = 0.70671378 Spread = (0.70821530-0.70671378) / 0.70821530 = .00212015 Try this manually… if you are still getting a different answer throw your calculator out…and abuse it before you do…
Wow…You go out 8 decimal places? I only go out 4, which is exactly why I was making the mistake. I’ve made the change to my calculator - thanks!
You won’t have this problem on the actual exam smarshy. Don’t let this bother you.
hahaha…mwvt’s way of telling me…*stop wasting your time mumu…focus on your books*
Nah. You did very nicely on this question. I just don’t think the CFAI will make you have your calculator set to 8 decimal points to get an answer correct. Especially when the answer is in 4 decimal points.
i always use 8 decimals…i think it’s been like that since i bought it… i do the rounding myself…just to be safe… yes I know…i’m a geek
I go with 5 myself
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