The question below is not difficult, but what threw me off is the unrealistic assumption in choice B that USD:GBP = 2.000 - 2.00015. We know this isn’t right because it’s in reverse in the real world. At first I thought they were being tricky and tried to invert the numbers (because I thought they actually gave us GBP:USD in the Q and I tried to solve for USD:GBP) but the numbers came out wrong. In short, my question is am I interpreting correctly that they make an unrealistic assumption here and can we expect to see this or would CFAI be more careful? Question ID#: 89066 Which of the following statements about exchange rates is most accurate? A) The bid-ask spread is a function of breadth, depth, and volatility of the market for a currency. B) Given the bid-ask spread between pesos and dollars is 6.0000-6.0025, and the bid-ask spread between pounds and dollars is 2.0000-2.0015, then the bid/ask spread between pesos and pounds is 2.875-2.934. C) A bid of 8.000 pesos/dollar, means the bank will sell you a dollar for 8 pesos. The correct answer was A. When the bank bids they are buying and you are selling. Spot exchange rates, forward exchange rates, and interest rates are closely linked. The bid-ask spread between pesos and pounds is 6.0000/2.0015 = 2.9978 and 6.0025/2.0000 = 3.0013.

CFAI tends to use realistic figures, especially when using FX rates.

another question substitute pif and paf as the two currencies… make it some unrealistic names… why are you getting so caught up in what the currency are, and what their actual relationship is? B-> Pesos to Pound Ask: 6.0025/2 = 3.00125 BNid = 6/2.0015 2.9978 so B is wrong. C -> Bid means Buy - so C is wrong. So that leaves A…