11. Bid-Ask Spread and Cross-Rates. (10 points) Next summer, you and your sister, Jenny, plan to participate in the "Study Abroad" program. You plan to go to Sydney, Australia and Jenny will visit Tokyo, Japan. Each of you must transfer your USD 1,000 to the respective foreign currency. Here is the market data: (AUD and JPY mean the Australian dollar and the Japanese yen, respectively.) AUDUSD spot rate: market quote bid and ask are 0.6550/0.6555. USDJPY spot rate: market quote bid and ask are: 142.80/143.20. Questions: a. What is the exchange rate that you use to buy the AUD? (1 point) What is your bid-ask spread in percentage? (1 point) How much AUD do you get when you convert your USD 1,000? ? (1 point) b. What is the exchange rate that Jenny uses to buy the JPY? (1 point) What is her bid-ask spread in percentage? (1 point) How much JPY does Jenny get when she converts her USD 1,000? (1 point) c. What are the AUDJPY cross-exchange bid and ask rates, assuming there is no transaction cost and the liquidity is very similar? (make sure you use the correct bid or ask rate) (2 points) What is the bid-ask spread in percentage for AUDJPY? (1 point) If you convert the AUD, which you got in part a, to the JPY using the AUDJPY exchange rates you calculate in this question, how much JPY do you get? (1 point) 11. Bid-Ask Spread and Cross-Rates. (10 points) Next summer, you and your sister, Jenny, plan to participate in the "Study Abroad" program. You plan to go to Sydney, Australia and Jenny will visit Tokyo, Japan. Each of you must transfer your USD 1,000 to the respective foreign currency. Here is the market data: (AUD and JPY mean the Australian dollar and the Japanese yen, respectively.) AUDUSD spot rate: market quote bid and ask are 0.6550/0.6555. USDJPY spot rate: market quote bid and ask are: 142.80/143.20. Questions: a. What is the exchange rate that you use to buy the AUD? (1 point) What is your bid-ask spread in percentage? (1 point) How much AUD do you get when you convert your USD 1,000? ? (1 point) b. What is the exchange rate that Jenny uses to buy the JPY? (1 point) What is her bid-ask spread in percentage? (1 point) How much JPY does Jenny get when she converts her USD 1,000? (1 point) c. What are the AUDJPY cross-exchange bid and ask rates, assuming there is no transaction cost and the liquidity is very similar? (make sure you use the correct bid or ask rate) (2 points) What is the bid-ask spread in percentage for AUDJPY? (1 point) If you convert the AUD, which you got in part a, to the JPY using the AUDJPY exchange rates you calculate in this question, how much JPY do you get? (1 point)
