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D). Brokered by dealers (06). Deutsche Bank announces the following spot exchange rate: S(S/E)-1.9712-1.9717. Credit Lyonnais announces the following spot exchange rate: S(S/6-1.4738-1.4742. What will be ideal exchange rate about S(e/E)? A). 1.3310 B). 1.3378 C). 1.3317 D). 1.3371 (07). For a U.S. trader working in American quotes, if the forward price is higher than the spot price A) The currency is trading at a premium in the forward market
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Answer #1

Answer:

Correct answer is:

D) €1.3371

Explanation:

Required: Ideal exchange rate for Euro to British Pound cross bid rate

The complete transaction would required to sell £ for $, and then pay $ to buy €

For £ to $, the applicable rate will be 1.9712 and

For $ to €, the applicable rate will be 1.4742

Hence ideal exchange rate S(€/£) will be = 1.9712 / 1.4742 = 1.337132 or 1.3371

As such option D is correct and other options A, B and C are incorrect.

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