****Spoiler***** This is derived from Book Seven Practice Exam 3 PM I wouldn’t have though a cross rate question would trip me up, after a half hour, way too long, and completely unexpected, I’ve got it. This question should make sure you have the concept nailed and can answer any variation in less than a minute. Carr currently has a position in Japanese yen that he wishes to convert to Taiwanese dollars. Quotes for both currencies in terms of US Dollar: Yen: $0.008852-56 $NT: 0.02874-6 He would like to purchase 10 million Taiwanese dollars (NT). What is the Yen cost to Carr of buying the NT$10million?? a) 3,077,886 Yen b) 3,081,420 Yen c) 32,452,575 Yen d) 32,489,833 Yen
I get D? (1/.008852)*.02876 = 3.248983281 Yen/$NT 10,000,000*3.248983281 = 32,489,832.81
10,000,000 NT * 0.02876 /NT \* 112.9688 Y/ = 32,489,833 Y
haha for jollies I’ll take C: 112.9177 * .02876 * 10,000,000 = 32,452,546 (rounding)
This is a really stupid question, but when the rates are in terms of the dollars is the dollar in the numerator or denominator?
D. Tricky. I have my own method to solve these. 90% of the time I am 50% right.
these rates are given with USD in the numerator.
----------------32,489,833 Y 112.9178 - 112.9688 Y/ 0.02874 - 0.02876 /NT ---------------10,000,000 NT I just set it up like this and go up or down the line…
I take my answer back- i flipped it and did NT/Y x 10 mil T which makes no sense at all. stupid currencies. I’d take C now.
Yup the answer is D. I was getting C too, getting the bids and asks flipped. To keep my head straight I’d go with Niblita’s method, no hating for McCleod but his method, starting with NT was messing with my melon. If I see one of these on the exam I would always think of it from the perspective of what I hold first, it seems to keep it straight for me about as often as Pink.
what a let down.
^ but you want to sell the Y at the Y/ ask rate (buy sell Y), and sell the at the /NT ask.
(1/.008852)*.02876 = 3.248983281 Yen/$NT but when you do reciprocals like the 1/.008852, that’s going to get you a bigger # than your ask reciprocal. so why do you take the bid # not the 1/0.008856 when you multiply times the 0.2876? I thought you were supposed to multiply bids x bids… what gives? i am going to pack it up in a sec. my brain is obviously fried.
Bid becomes ask and vice versa when you take the reciprocal.
bedtime- yeah got it. ask and ask, dude’s buying. for some reason i thought the .2876 was the bid side and that we had crossed them up bid one and ask the other. cool, good, chalk that to late night dumb mistakes and me not writing down on paper- normally when i write out the currencies and cxl the right stuff out i don’t go braindead. thx. good night all. marathon weekend here we come.
i’m following banny to bed (not the same bed though). 14 hours today and i’m toast.
ya D is right… its not tricky as long as u remember the up-bid down-ask rule…