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Suppose that you had some ZAB you needed exchange for XYZ. Because these two currencies are highly illiquid, however, there are no direct quotes for

Suppose that you had some ZAB you needed exchange for XYZ. Because these two currencies are highly illiquid, however, there are no direct quotes for this trade.

i) Please find out the bid and ask quotes of XYZ/ZAB, using cross rates with the USD. The bid and ask exchange rates with regard to the USD are the following: XYZ /USD: 125.0-126.0; ZAB/USD: 4.80-5.00

(6 Marks)

ii) List two factors that determine the width of a bid-ask spread quoted by the dealer.

(4 Marks)

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