Question
In: Finance
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 agoRelated Solutions
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A foreign exchange trader based in the US, authorized to borrow
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The following are quotes from a currency dealer in the New York
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Spot quote
Australian dollar (AUD/USD)
0.7832 - 0.7834
Brazilian real (USD/BRL)
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British pound (GBP/USD)
1.3507 - 1.3509
Canadian dollar (USD/CAD)
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Euro (EUR/USD)
1.1948 - 1.1949
Japanese yen (USD/JPY)
111.44 - 111.45
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The following are quotes from a currency dealer in the New York currency market: Currency Spot...
The following are quotes from a currency dealer in the New York
currency market:
Currency
Spot quote
Australian dollar (AUD/USD)
0.7832 - 0.7834
Brazilian real (USD/BRL)
3.2335 - 3.2365
British pound (GBP/USD)
1.3507 - 1.3509
Canadian dollar (USD/CAD)
1.2555 - 1.2557
Euro (EUR/USD)
1.1948 - 1.1949
Japanese yen (USD/JPY)
111.44 - 111.45
Mexican peso (USD/MXP)
19.3653 - 19.3718
New Zealand dollar (NZD/USD)
0.7181 - 0.7184
Thai baht (USD/THB)
32.1240 - 32.1430
Egyptian pound (USD/EGP)
17.6860 - 17.8460
South Korean won...
A Foreign currency trader at the bank’s FX desk calls to inform you that Bank of...
A Foreign currency trader at the bank’s FX desk calls to inform
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6.
A) You observe the following quotes for the USD/AUD in
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Bank of New York
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Ask
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Ask
0.71711
0.71715
0.71708
0.71715
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4. Hint a) You observe the following quotes for the USD/AUD in the spot market from...
4. Hint
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Bank of Sydney
Bank of New York
Bid
Ask
Bid
Ask
0.71711
0.71715
0.71708
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using locational arbitrage? If so, calculate the potential profit
if you are able to use AUD 25,000. If not, explain why arbitrage is
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4. a) You observe the following quotes for the USD/AUD in the spot market from two...
4. a) You observe the following quotes for the USD/AUD
in the spot market from two banks:
Bank of Sydney
Bank of New York
Bid
Ask
Bid
Ask
0.71711
0.71715
0.71708
0.71715
Do these quotes imply the possibility of earning a profit by
using locational arbitrage? If so, calculate the potential profit
if you are able to use AUD 25,000. If not, explain why arbitrage is
not possible?
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