For your enjoyment ---------------------------------------- Which of the following statements about exchange rates is most accurate? A) Given the bid-ask spread between pesos and dollars is 6.000 - 6.0025, and the bid-ask spread between pounds and dollars is 2.000-2.0015, then the bid ask spread between pesos and pounds is 2.875-2.934 B) The bid-ask spread is a function of breadth, depth, and volatility of the market for a currency C) A bid of 8.000 pesos/dollar means the bank will sell you a dollar for 8 pesos D) Spot exchange rates, forward exchange rates, and interest rates are only loosely linked ---------------------------------------- I like this problem even if it is kind of easy. All of the wrong answers require you to know a different fun fact about exchange rates in order to eliminate them.

B

b

i would go B as well

Dwight, post the answer buddy!!

anishcandy Wrote: ------------------------------------------------------- > Dwight, post the answer buddy!! Haha sorry sir, B is correct! Anyone have any good strategies for working the cross exchange rate out in answer A in order to eliminate it? Here’s the way I do it… Step 1: Convert the problem into a multiplication of the bid/asks. Pesos / Dollars X Dollars / Pounds So we need the Dollars / Pounds exchange rate first. To do this take the inverse of the bid and the ask and then swap them (since the bid is always lower than the ask). So we have for the bid: 1/2.0015 and for the ask: 1/2.000 Step 2: Multiply the bid by the bid and the ask by the ask. 6.000 * .4996 and 6.0025 * .5000 So your cross exchange rate for Pesos/Pounds = 2.9978 - 3.0013 I though “C” was a tricky choice, but it is backwards from what the correct answer would be, as the bank would SELL at the ask.

=)

Dwight Wrote: ------------------------------------------------------- > anishcandy Wrote: > -------------------------------------------------- > ----- > > Dwight, post the answer buddy!! > > > Haha sorry sir, B is correct! > > > > Anyone have any good strategies for working the > cross exchange rate out in answer A in order to > eliminate it? > > Here’s the way I do it… > > Step 1: Convert the problem into a multiplication > of the bid/asks. > > Pesos / Dollars X Dollars / Pounds > > So we need the Dollars / Pounds exchange rate > first. To do this take the inverse of the bid and > the ask and then swap them (since the bid is > always lower than the ask). So we have for the > bid: 1/2.0015 and for the ask: 1/2.000 > > Step 2: Multiply the bid by the bid and the ask > by the ask. > > 6.000 * .4996 and 6.0025 * .5000 > > So your cross exchange rate for Pesos/Pounds = > 2.9978 - 3.0013 > > > > I though “C” was a tricky choice, but it is > backwards from what the correct answer would be, > as the bank would SELL at the ask. Much easier to keep the problem as it is instead of calculating the inverse. 6.0025/2 6/2.875 Remember the ask will be the higher numerator/lower denomenator.

ThePinkMan: Much easier to keep the problem as it is instead of calculating the inverse. 6.0025/2 6/2.875 Remember the ask will be the higher numerator/lower denomenator. You mean 6.0025/2 6/2.0015 !!

anishcandy Wrote: ------------------------------------------------------- > ThePinkMan: > > Much easier to keep the problem as it is instead > of calculating the inverse. > > 6.0025/2 > 6/2.875 > > Remember the ask will be the higher > numerator/lower denomenator. > > You mean > 6.0025/2 > 6/2.0015 !! And for this problem you really only needed to calculate one side of the bid-ask spread. 6.0025/2 = 3.00125 which is neither 2.875 or 2.934, so it is wrong.

wanderingcfa Wrote: ------------------------------------------------------- > anishcandy Wrote: > -------------------------------------------------- > ----- > > ThePinkMan: > > > > Much easier to keep the problem as it is > instead > > of calculating the inverse. > > > > 6.0025/2 > > 6/2.875 > > > > Remember the ask will be the higher > > numerator/lower denomenator. > > > > You mean > > 6.0025/2 > > 6/2.0015 !! > > > And for this problem you really only needed to > calculate one side of the bid-ask spread. > > 6.0025/2 = 3.00125 which is neither 2.875 or > 2.934, so it is wrong. The calculations were shown otherwise. Are you seriously Wandering??

Just like a nomad…except I need the CFA for my title to be appropriate. And I hate moving so my life is a constant struggle.

No biggie WanderingCFA that was confusing putting in blatantly wrong answers like that. That’s the biggest problem of mine - not reading the entire question and pulling out my jump to conclusions mat.