11. Explain how the bid-offer spread is determined in the spot foreign exchange market.
11. Explain how the bid-offer spread is determined in the spot foreign exchange market.
Homework Answers
The bid-offer spread is determined in following manner in the spot foreign exchange market –
Spread (%) = {(Offer price – Bid price)/ Bid price} *100
Where,
Offer Price is the lowest price of a particular currency that dealer is willing accept to sell that currency
Bid Price is the highest price of a particular currency that trader is willing to pay to buy that currency
The bid-offer spread is generally stated in percentage term.
Add Answer to:
11. Explain how the bid-offer spread is determined in the spot
foreign exchange market.
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Question 5: The spot ask exchange rate is $1.90 = £1.00 and the spot bid exchange rate is $1.89 = £1.00. If you wan to buy $10,000,000 worth of £, and ten minutes later, you want to sell them. How much money would be lost due to the bid-ask spread? (8 points)
Suppose the spot ask exchange rate, sa ($£), is $1.90 = £1.00 and the spot bid...
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2. Synthetic Forward a) Explain how deposits and spot transactions in the foreign exchange rate can be used to create the same payoff as a forward contract. Illustrate with an example. b) Assume the US interest rate on a 1 year deposit is 1% and the Japanese rate on an identical deposit is / and the spot rate is 100 yen/US$. Compute the forward rate and the forward premium. Show calculations
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