Question

Suppose the spot quote on the euro is $0.9302-18 and the spot quote on the Swiss franc is $0.6180-90.

Compute the percentage bid-ask spreads on the euro and the franc, then calculate the direct spot quote for the franc in Paris.

Answer 1

Percentage Bid-Ask spread on the Euro = $0.9302-18 or $0.9302 - $0.9318

Spread% = (Ask price - Bid price)/Ask price*100

Spread% = (0.9318-0.9302)/0.9318*100

Spread% = 0.1717%

Percentage Bid-Ask spread on the Franc = $0.6180-90 or $0.6180- $0.6190

Spread% = (Ask price - Bid price)/Ask price*100

Spread% = (0.6190-0.6180)/0.6180*100

Spread% = 0.1618%

The direct spot quote for the franc in Paris

In this case, we need to calculate both Bid-Ask quote of the Franc in Paris

Step 1 - We have to sell the franc for $0.6180 and then convert $0.6180 into euros at ask rate of $0.9318. Thus the bid rate for the franc is

0.6180/0.9318 = €0.6632

Step 2 - We have to buy euro at cost $0.6190 and one euro can be converted into into $0.9302. So, the ask rate will be
€0.6190/0.9302 = €0.6654

Bid-ask quote on the franc in Paris = €0.6632-54

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