Dow Chemical receives quotes from a foreign currency trader of USD 0.1642 – 0.1657 / DKK...

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

Solutions

Expert Solution

Rememebr in a bid ask spread game, the bank always gets the benefit.

So you buy at the expensive rate and sell at the cheaper rate.

Amount you need in USD to purchase 100 million PLZ = PLZ 100 x USD 0.2646 / PLZ = USD 26.46 million

In order to get this amount of USD, you need to pay = USD 26.46 / (USD 0.1642 / DKK) = DKK 161.14 million = DKK 161,144,945

jeff jeffy answered 2 years ago

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