Question 2

(a) An investor is given the following quotes from a bank:

	Bid	Offer
S$ / US$	0.7410	0.7430	(i.e. S$1 = 74 US cents approximately)
S$ /	0.5030	0.5050	(i.e. S$1 = 0.5 euro approximately)

Suppose the investor has 1,000 Euros and wants to change them into US dollars.

Analyse how the investor could determine the amount of US dollars the bank will give him. Answer to three (3) decimal places.

(b)

Suppose it is reported in the news that the US government would make a major announcement in one weeks time regarding the imposition of new tariffs on goods exported from Europe. Briefly discuss one (1) reason each why:

(i) The Euro weakens

(ii) The bid-ask spread of EUR/USD widens

(c)

It is observed that the bid-ask spread of a currency pair is wider at a banks currency exchange counter at the airport compared to the spread at the banks downtown branch counter. List and briefly discuss one (1) reason.