Spot quote 1.1724 -1.1726 1.3387-1.3389 0.9836-0.9838 109.65-109.67 115.73-115.8

Question

Spot quote 1.1724 -1.1726 1.3387-1.3389 0.9836-0.9838 109.65-109.67 115.73-115.83 Currency Euro (EUR/USD) British pound (GBP/USD) Swiss franc (USD/CHF) Japanese yen (USD/JPY) Pakistani rupee (USD/PKR) Part 3. Cross rates a. What are the implied cross bid and ask exchange rates for the Swiss franc and the Pakistani rupee? Which currency would be the base currency in the cross exchange rate? b. What are the implied cross bid and ask exchange rates for the Euro and the British pound? Which currency would be the base currency in the cross exchange rate? c. What are the implied cross bid and ask exchange rates for the British pound and the Japanese yen? Which currency would be the base currency in the cross exchange rate? d. How many Pakistani rupees will a customer that trades CHF1 million to this dealer receive?

Explanation / Answer

a) Given,

USD / CHF           0.9836 – 0.9838

USD / PKR           115.73 – 115.83

BID ( CHF / PKR )               = BID ( CHF / USD ) * BID ( USD / PKR )

                                                = 1/ASK ( USD / CHF ) * BID ( USD / PKR )

                                                = 1/0.9838 * 115.73

                                                =117.64

ASK ( CHF / PKR )              = ASK ( CHF / USD ) * ASK ( USD / PKR )

                                                = 1/BID ( USD / CHF ) * ASK ( USD / PKR )

                                                = 1/0.9836 * 115.83

                                                = 117.76

Here base currency is CHF

b) Given,

EUR / USD           1.1724 – 1.1726

GBP / USD           1.3387 – 1.3389

BID ( GBP / EUR)               = BID ( GBP / USD ) * BID ( USD / EUR )

                                                = BID ( GBP / USD ) * 1/ASK ( EUR / USD )

                                                = 1.3387 * (1/1.1726)

                                               =1.1417

ASK ( GBP / EUR)              = ASK ( GBP / USD ) * ASK ( USD / EUR )

                                                = ASK ( GBP / USD ) * 1/BID ( EUR / USD )

                                                = 1.3389 * (1/1.1724)

                                               = 1.1420

Here base currency is GBP

c) Given,

GBP / USD           1.3387 – 1.3389

USD / JPY            109.65 – 109.67

BID ( GBP / JPY)                                = BID ( GBP / USD ) * BID ( USD / JPY )

                                                = 1.3387 * 109.65

                                                = 146.79

ASK ( GBP / JPY)                               = ASK ( GBP / USD ) * ASK ( USD / JPY )

                                                = 1.3389 * 109.67

                                                = 146.84

Here base currency is GBP

d) Here the customer need to receive PKR (Product in exchange rate), bank sells PKR, hence ask rate is relevant.

So customer get 117.76 million PKR

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