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Suppose the spot quote on the euro is $0
Suppose the spot quote on the euro is $0.9302-28, and the spot quote on the Swiss franc is $0.6180-95.How would I compute the percentage bid-ask spreads on the euro and franc?And what would the direct spot quote be for the franc in Frankfurt?
Expert Solution
please see the attached file.
1. The bid-ask spread is calculated as follows:
The percentage bid-ask spreads on the euro and franc are calculated as follows:
Euro bid-ask spread = (0.9328 - 0.9302)/0.9328 = 0.27%
SFr bid-ask spread = (0.6195 - 0.6180)/0.6195 = 0.24%
2. In order to sell one franc for euros, first sell the franc for $0.6180 and then convert $0.6180 into euros at the ask rate of $0.9328.
Thus the bid rate for the franc is 0.6180/0.9328 = ?0.6625.
Similarly, to acquire one franc, sell euros for dollars and then sell dollars for francs. Specifically, it costs $0.6195 to buy 1 franc. Because ?1 can be converted into $0.9302, it takes ?0.6195/0.9302 = ?0.6660 to buy $0.6190. Thus the ask rate for francs is ?0.6660.
The bid ask quote on the franc in Frankfurt is therefore ?0.6625-60.
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