a) Suppose that as a trader from Bank A, you call a trader at Bank B and ask for a quote on the Mexican peso. She quotes USD/MXN = 8.9767 - 86.

Under this scenario, what are your three options, and at what price can you transact? Note that as the caller, you will have to “cross the spread,”

thatis, transact at the price least favorable to you, if you do decide to transact at all.

b) Now suppose you are an FX trader at Bank C who receives a call from an authorized trader at Bank A. You are asked for your price in Dollar/Mark

(for which you are hired to deal), and you make the price USD/DEM 2.2293 - 98.

If the caller from Bank A decides to buy, at what price does the transaction go through?