Question
Cross-Rate Trading. Find the currency against currency bid, ask and bid-ask spread for the currencies listed below. Show your work! (It may be helpful to
Cross-Rate Trading. Find the currency against currency bid, ask and bid-ask spread for the currencies listed below. Show your work! (It may be helpful to use equations 5.12 and 5.13 on page 125 and 126. The methods are demonstrated on page 125 126 in Example 5.2 and Exhibit 5.7 parts a & b for finding euros-to-pounds spread)
Japanese yen and Canadian dollar (in both Japanese yen and Canadian dollars)
TO FIND THE CROSS-RATE BID & ASK
First, start with the American ask spot of Sa ($ / ) = 0.010094 from exhibit 5.4, then work to complete the chart below.
You will adjust the American bid price of S b ($ / ) so that it is 5 points (0.0005) less than the American ask spot quote,
Sa ($ / Fx). S b ($ / ) = ____________________________
The European bid and ask would then accommodate the spread by taking the inverse of the American ask and bid.
S a ( / $) = ______________________ S b ( / $ ) = __________________________
Second, Repeat the process for the S ($ / C$) American and European bid and ask spot quotes.
Third, Summarize your efforts:
American | In (US) | European | per (US) | |
Bank quotations | Bid | Ask | Bid | Ask |
Japanese Yen | 0.010094 | |||
Canadian Dollar |
Fourth, Find the cross rates using formulas, then Quote the cross rate & calculate the spread:
A. In Japanese yen, , the bid and ask formulas for the yen against the C$ S b ( / C$ ) = Sb ( $ / C$ ) * Sb ( / $ ) = S a ( / C$ ) = Sa ( $ / C$ ) * Sa ( / $ ) = Quote: _____________________ - ___________________ & Spread (difference) = _________________
B. In Canadian dollar, C$, adjust the formulas for the C$ against the Quote: C$ ____________________ - C$ ___________________ & Spread (difference) = C$ ________________
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