Question

a. Assume you have GH¢5000 and plan to travel from Ghana to U.S. Assume further that the bank’s bid rate for the dollar to the cedis is GH¢1.52 and it’s ask rate is GH¢1.60 to the dollar. How many dollars will you get from your GH¢ 5000

b. Now suppose there is an emergency and you don’t want to travel again, so you have to reconvert the dollars back to cedis, how much cedis will you have?

c. Assuming that the Stetson bank Bid rate is $0.884 and the Australian Ask rate is $0.9. What is the percentage change of the Ask/Bid spread?

Answer 1

a) Ask rate is the rate at which the bank is willing to sell the US dollars . In other words it is the amount of local currency that a person will need pay in exchange of foreign currency

Ask rate for $ 1 = GH¢1.60

Now as the person has GH¢5000 and wants to convert then in US Dollars, the amount of dollars that will be received is

= Local currency / Ask rate

= 5000 / 1.60 = $ 3,125

The amount of US $ that a person will receive in exchange of GH¢5000 are $ 3,125

b) Bid rate is the rate at which the bank is willing to purchase the US $ and convert them into local currency. In other words it is the amount of local currency that a person will get in exchange of foreign currency.

Bid rate for $ 1 = GH¢1.52

Means a person will get GH¢1.52 for every $ 1

Now as the person had converted the currency into US $ and has currently $ 3,125 with him. So the amount of credis, he will receive is

= Foreign currency * Bid rate

= 3125 * 1.52 = GH¢4750

The amount of credis that a person will receive in exchange of $ 3,125 are GH¢4750

c) We can calculate the percentage change of the Ask/Bid spread by using the below formula

Ask/Bid spread = Ask price - Bid price

= 0.9 - 0.884 = $ 0.016

Percentage change of the Ask/Bid spread = (Spread / Ask price) * 100

= (0.016 / 0.9) * 100

= 0.0177 * 100 = 1.77%