Question

The following are quotes from a currency dealer in the New York currency market:

Currency Spot quot<e Australian dollar (AUD/USD) 0.7177 - 0.7179 Brazilian real (USD/BRL) British pound (GBPUSD) Canadian dollar (USD/CAD) Euro (EUR/USD) Japanese yen (USD/JP Mexican peso (USD/MXP New Zealand dollar (NZD/USD) 0.6799 - 0.6801 Thai baht (USD/THB) South Africa rand (USD/ZAR)13.859 - 13.889 South Korean won (USD/KRW)1117.34 - 1119.34 Swiss franc (USD/CHF) 3.6854 - 3.6858 1.2775 - 1.2778 1.3208 - 1.3212 1.1528 - 1.1532 108.29 - 108.30 19.232 - 19.241 31.940 - 31.960 0.9756 - 0.9761

Using the quotes provided above, answer the following question. (Phrase your explanation in parts b and d: as “If you sell one (specify the currency) to the dealer, you will receive (specify the number of units and the currency)” or “If you buy one (specify the currency) from the dealer, you will pay (specify the number of units and the currency)”.)

3. Using the quotes provided above, answer the following question. (Phrase your explanation in parts b and d in the same manner as in question 2.)

3a. What is the base currency for the Mexican peso quote?

b. What is the dealer’s bid price for the Mexican peso? Explain what it means.

c. What is the base currency for the Thai baht quote?

d. What is the dealer’s ask price for the Thai baht? Explain what it means.

4. Using the quotes provided above, how many units of the following foreign currencies would a customer receive from this dealer in exchange for one million US dollars?

a. Canadian dollars       

b. Korean won           

c. euros           

d. New Zealand dollars       

(In these transactions, the customer is selling US dollars and buying foreign currency.)

Answer 1

3a) The quote Mexican Peso USD/MXP 19.232 means 1 USD is exchanged for 19.232 MXP, Here USD is the BASE CURRENCY and MXP is quote currency , so in this case USD is base currency.

3b) In the quote Mexican Peso USD/MXP 19.232- 19241 , USD/MXP 19.232 is the Dealer's Bid Price, it means 1 USD is exchanged for 19.232 MXP, for example if you want to sell 1000 USD, you will get MXP of 1000*19.232= MXP 19,232.

3c) The quote Thai Baht USD/THB 31.940 means 1 USD is exchanged for 31.940 Thai Bhat, Here USD is the BASE CURRENCY and Thai Bhut is quote currency , so in this case USD is base currency.

3d) In the quote Thai Baht USD/THB 31.940-31.960 , USD/THB 31.960 is the Dealer's Ask Price, it means 1 USD is exchanged for 31.960 THB, for example if you want to buy 1000 USD, you need to pay THB of 1000*31.960= THB 31,960.

4a) The quote for Canadian Dollar is USD/CAD 1.3208-1.3212, and the exchange rate here the dealer is BID PRICE, it means selling of 1 USD will get 1.3208 Canadian Dollars. So in the given case selling of 10 million dollars will get 10 millions*1.3208=13.208 Million Canadian Dollars.

4b) The quote for South Korean won USD/KRW is 1117.34-1119.34 , and the exchange rate here the dealer is BID PRICE it means selling of 1 USD will get 1117.34 KRW. So in the given case selling of 10 million USD dollars will get 10 millions*1117.34=11173.4 Million KRWs.

4c) The quote for EURO is EUR/USD 1.1528-1.1532 , and the exchange rate here the dealer is ASK PRICE it means selling of 1 EURO will get 1.1532 USD Dollars. So in the given case selling of 10 million USD dollars will get 10 millions/1.1532= 8.671523 Million USD .

4d) The quote for New Zealand Dollar is NZD/USD 0.6799-0.6801, and the exchange rate here the dealer is BID PRICE it means selling of 1 USD will get 0.6801 NZDollars. So in the given case selling of 10 million USD dollars will get 10 millions/0.6801= 14.70372 Million NZD .

Note: Please note that Dealer will be the benifiary in selecting the quotes always, and the difference of bid price and ask price is the comission to the dealer.