Question

Dow Chemical receives quotes from a foreign currency trader of USD 0.1642 – 0.1657 / DKK and USD 0.2618 – 0.2646 / PLZ.  How many DKK will Dow Chemical pay the trader for a purchase of 100 million PLZ? Explain. Calculations and explanation

Answer 1

USD 0.1642 – 0.1657 / DKK

This quotation implies that, we can buy DKK at 0.1657 USD/DKK and sell DKK at 0.1642 USD/DKK

USD 0.2618 – 0.2646 / PLZ

This quotation implies that, we can buy PLZ at 0.2646 USD/PLZ and sell PLZ at 0.2618 USD/PLZ

First, we need to buy USD from 100 million PLZ. In other words we need to sell 100 million PLZ to buy USD

We sell PLZ at 0.2618 USD/PLZ: 100,000,000 * 0.2618 = 26,180,000 USD

Now, we need to sell USD to get DKK. In other words we need to buy DKK

We buy DKK at 0.1657 USD/DKK: 26,180,000/0.1657 = 157,996,378.9981895 DKK

Answer: 157,996,378.9981895 DKK