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)”.)

1. Using the quotes provided above, how many US dollars a customer would receive from this dealer in exchange for one million

a. British pounds?       

b. Brazilian real?            

c. Swiss francs?       

d. Australian dollars?   

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

2. Using the quotes provide above, how many US dollars would it cost to purchase one million

a. euros?

b. Australian dollars?

c. Mexican pesos?

d. Japanese yen?

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

3 Using the quotes provided above, how many units of the foreign currency indicated would it take to purchase one million US dollars

a. New Zealand dollars       

b. South Africa rand            

c. British pounds       

d. Thai baht   

(In these transactions, the customer is buying US$, paying foreign currency.)

Answer 1

The two rate given in each currency specifies the difference between spot rate and ask rate. What are these two rates? Lets have brief on that-: bid is the rate that defines the maximum price buyer willing to pay for a security and the ask rate is the minimum price the seller is willing to receive . The bid and ask rate are the key indicator of the liquidity of the assets. Lets take an example from the above question Now the rate is given 1aud= 0.7177 - 0.7179, (0.7177) is the rate that willingness of a customer to buy those security hence the bid price and 0.7179 shows the willingness of seller hence the ask rate. Now lets solve the question to clear the concept

1.a) 1gbp= 1.2775 - 1.2778

1milliongbp= 1277500usd(1000000*1.2775)

1.b) 1brl= 1/3.6858usd -1/3.6854usd

1million brl= 271311.5199usd(1000000*(1/3.6858)

1.c) 1chf= 1/.9761- 1/1.9756

1 million chf = 1024485.196usd( 1000000*(1/0.9761)

1.d) 1aud= 0.7177usd- 0.7179usd

1million aud= 717700usd(1000000/0.7177)

These rates are being taken because from bank point of view or dealer point of view they will never suffer a loss in any case.

2.a) 1euro= 1.1528usd -1.1532usd

1million euro = 1000000*1.1532= 1153200usd

2.b)1million aud = 1000000*0.7179= 717900

C) 51996.67221(1million*1/19.332)

D)9234.463016

3)

A) 1470804.53usd

B 13889000

C 782778.665