Question

Please Only Answer Parts C, D and E

1. Given below are a set of foreign exchange quotes for several currencies against the Australian dollar as of May 15, 2019.
Australian Dollar Exchange Rates
Currency
Sell/buy
US, dollar
0.6926/0.6928
UK, pound
0.5366/5369
China, yuan Renminbi
4.7528/4.7569
Fiji, dollar
1.4708/1.5263
India, rupee
48.628/48.648
New Zealand, dollar
1.0548/1.0556
Papua New Guinea, kina
2.2745/2.4097
Singapore, dollar
0.9477/0.9483
Sri Lanka, rupee
121.967/122.21
Switzerland, franc
0.6979/0.6984
(a) Are these direct or indirect quotes from the perspective of an Australian resident? (1 mark)
(b) What are the direct quotes for the following currencies with respect to the Australian dollar?
(i) US dollar
(ii) Chinese Renminbi
(iii) Indian rupee
(iv) New Zealand dollar
(v) Swiss Franc (5 marks)

Please Only Answer Parts C, D and E

(c) Calculate the bid-ask spread for the following currencies:
(i) UK pound
(ii) Fiji dollar
(iii) Singapore dollar
(iv) Papua New Guinea kina
(v) Sri Lanka rupee (10 marks)

(d) On May 15, 2019, you receive 100,000 RMB. Using the rates in the above chart how many AUD will you receive upon conversion? (2 marks)

(e) On May 15, 2019, you want to buy 1,000,000 THB. Using the rates in the above chart how many AUD will you require for the purchase? (2 marks)

Answer 1

Calculate the bid-ask spread for the following currencies.
(i) UK pound = Ask price – Bid price

= 0.5369-0.5366 = 0.0003

(ii) Fiji dollar = Ask price – Bid price

= 1.5263-1.4708 = 0.0555

(iii) Singapore dollar = Ask price – Bid price

= 0.9483 – 0.9477 = 0.0006

(iv) Papua New Guinea kina = Ask price – Bid price

= 2.4097 – 2.2745 = 0.1352

(v) Sri Lanka rupee = Ask price – Bid price

= 122.21-121.967 = 0.243

On May 15, 2019, you receive 100,000 RMB. Using the rates in the above chart how many AUD will you receive upon conversion?

Amount of Receipt = RMB 100,000

Domestic Currency = AUD

Action = Sell RMB

Quote Required = AUD/RMB_bid

The required quote is not available, therefore taking reverse quote.

Reverse Quote = AUD/RMB_bid [1/4.7569] / AUD/RMB_ask [1/4.7528]

                        = AUD/RMB_bid 0.2102 / AUD/RMB_ask 0.2104

Therefore, Amount to be received on conversion = RMB 100,000 * AUD/RMB_bid 0.2102

= AUD 21,020

On May 15, 2019, you want to buy 1,000,000 THB. Using the rates in the above chart how many AUD will you require for the purchase?

Amount of Payment = THB 1,000,000

Domestic Currency = AUD

Action = Sell AUD

Quote Required = AUD/THB_ask

Quote Available = THB/AUD 21.87/21.89 (Based on quote of 15^th May, 19 available from Thompson Reuters)

The required quote is not available, therefore taking reverse quote.

Reverse Quote = AUD/THB_bid [1/21.89] / AUD/THB_ask [1/21.87]

                        = AUD/RMB_bid 0.0456 / AUD/RMB_ask 0.0.457

Therefore, Amount required for purchasing THB = THB 1,000,000 * AUD/THB_bid 0.0457

= AUD 45,700