(help) bid-ask EOC confuse me all night, thanks.

i know this is ugly, reading 36 EOC question 10, we use 0.9810(bid) to change euro to dollar (which makes sense to me because we are selling euro to get dollar so we have find the rate at which dealer is buying euro, which is the bid. however, if you look at part B, when we calculate the capital gain, why we use 0.9795(ask) first, then use 0.9810(bid)??? we in all case would like to change euro to dollar, and we in all case are investors, why different rate was used? any inputs are highly appreciated, thanks.

Keep one thing in mind - what is Bid for the dealer is Ask for you and vice versa. Bid = Buy The dealer’s bid will always be lower = your ask will always be lower. Which means, in this case you are buying “high” and selling “low”. The dealer always wins. Now look at the problem again and see if this helps.

thanks for the response, but, just confused about, different rate was used when the investor buys the share(ask) and sell the share later(bid), yes we are buying high selling low, but this is toward on currency, not the stocks right?? ultimately this investor is to exchange euro to dollars isn’t it??? sorry i am a little messed up on this…

There is an simple rule of thumb to getting the bid-ask spread correct. It is a two step process. Step 1: Make sure you are canceling out currencies. For example: :€ is read X Euros per dollar. In mathematical terms that is €/. If you are given :€ and :¥, and you need €:¥… :€ = €/ :¥ = ¥/ Therefore, ¥/€ = ¥/ \* /€ = ¥/€ / €/ Note that the signs cancel out. Step 2: Minimze your bid and maximize your ask. ------------------- Another way of thinking about it is that you are always screwed. If you are investing in equities, what combination of transactions would hurt you the most. If you are starting with , you will always end up with the least € going into the foreign currency and the least when you transfer back.