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Basic Question 4 of 4
Suppose the Brazilian real is quoted at $:R = 0.9955 - 1.0076 and the Thai baht is quoted at $:B = 25.2513 - 3986. What is the direct quote for the real in Bangkok (R:B)?
B. 25.1376 - 2654
C. 25.0608 - 5134
A. 30.5541 - 6456
B. 25.1376 - 2654
C. 25.0608 - 5134
User Contributed Comments 9
| User | Comment |
|---|---|
| schweitzdm | I can't be the only one loathing this section |
| robbiecow | Best way to think about this is if you get it the question in Bid-Ask format and are asked for the cross rate just think of the letter "X" for cross and align each Bid-Ask to the correct point. |
| ankurwa10 | Please explain the entire approach Robbiecow, including how you solved it. Thanks |
| ankurwa10 | On second thoughts, here's how I got the answer right. Don't know if the approach is right. the concept of cross-currency is that: you sell one currency (GBP) to get some $; and then use this $ to buy another currency (Bhat) now, when selling GBP --> you need the highest price, so use the ask rate. i.e. since $:R => R/$ = 1.0076 (remember the reading where it says that if S => a:b (in division terms it is b/a) when buying Bhat --> you need the cheapest price, so use the bid rate. i.e. since $:B => B/$ = 25.2513 Now, solve to eliminate the $, you get R/B = 25.2513 and since R/B => B:R which is the Direct quote for Bhat:GBP. What I am confused about is why do separate bid/ask rate calculations. Also, does the concept I outlined above apply to this method (that of calculating bid and ask spread) |
| oprea_cl | QUICK TIP: If the BASE currency is on: 1. Same side - cross divide the quotes (larger nr / smaller number) 2. Different sides - multiply same side |
| davidt876 | Price/Base ask - buy base Price/Base bid - sell base THB/BRL ask - price in THB to buy 1 BRL (buy base) THB/BRL bid - value of THB received when selling 1 BRL (sell base) you only need to calculate 1 to eliminate the other answers. I chose to find the bid by seeing how much THB i get for selling 1 BRL Sell 1 BRL & Buy 'x' USD - use ask price of BRL/USD because you're buying base: ask = 1.0076 BRL/USD [invert the ask price to end in USD and not BRL^2/USD] x = 0.992457 USD/BRL * 1 BRL x = 0.992457 USD Sell USD & Buy 'y' THB - use bid price of THB/USD because now you're selling base: bid = 25.2513 THB/USD [don't invert because otherwise you'll end up with USD^2/THB] y = 25.2513 THB/USD * 0.992457 USD y = 25.0608 THB |
| ashish100 | Find value 1 unit of currency used on both sides. Use two values and equal them together THEN BOOM |
| skarthi146 | if we are clear on two things then we can tackle any combination 1) if A/B bid - offer is given, then B/A bid = 1 / A/B offer B/A ask = 1/ A/B bid 2) A/B and B/C bids and asks are given and if we need to compute A/C bid-ask then we can get it by direct multiplication (i mean A/B * B/C, B cancels out and A/C remains). A/C bid = A/B bid * B/C bid A/C ask = A/B ask * B/C ask suppose we are given A/B and C/B bids and asks and need to compute A/C bid-ask then, first find out the B/C bid-ask using C/B and formula given in my first point. Then follow the second point. |
| khalifa92 | A/C bid= (A/B)bid * (B/C)bid A/C bid= (A/B)bid * (1/(C/B)offer) A/C bid= (A/B)bid / (C/B)offer |
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
calculate and interpret currency cross-rates
CFA® 2024 Level I Curriculum, Volume 1, Module 8.