All, For reading 35 on Equity Mkts and Instruments, for question 11 on page 90, can someone please explain why the text uses the Swedish Kroner ask rate for the initial investment and bid rate for the dividend/sale? Thanks for your help on this.
Skr/ 9.4173-9.4188.. You are the Swedish investor purchasing MS. so u got to buy to purchase MS shares The bank/ broker is willing to sell @9.4188..that is ur buy rate... when u sell the shares u get and u got to convert it to Your currency ie SKR… sell n buy Skr the bank buys @ 9.8710…
You can also think of it like this! which is easier: you are not the dealer but the investor! So you will always have the worst rate for whatever you sell or buy. If you sell you will have the lowest rate. If you buy you will have the highest rate. So in your question the spot rate S is S= Skr/ $ 9.4173-9.4188 What is the worst rate to get your USD to buy your stocks? 9.4188 FX section is plain logic.
i agree this logic helps
In the purchase of of MS stock, the Swedish investor has to buy USD. The rate is in terms of SKr per USD. And like what mv says, you are the investor and are at the losing end, and so you’d need to use more SKr to buy USD. MV’s logic is perfectly sound. However for me I prefer to imagine myself as the dealer…I’d “buy low sell high”.
good stuff MV. Nice way to think of it.
Thanks guys, this helps