Quotes for the Dollar against the British pound: 0.7855 – 0.7925 Quotes for the British pound...

Quotes for the Dollar against the British pound: 0.7855 – 0.7925 Quotes for the British pound against the dollar: 1.4475- 1.4755.

1) Which market would you use of you want to BUY dollars?

2) Which market would you use if you want to SELL dollars?

Solutions

Expert Solution

First let's convert the rates to make them comparable:

Bid is the price at which the dealer buys and you sells while ask is the price at which the dealer sells and you buy.

At 0.7855 the Dealer buys $1 and you sell it
- So this is a bid rate for $
- When dealer buys $ he sells Pound so it is also the ask for Pounds
- If 0.7855 pounds buy $1 so how many $ are needed to buy 1 pound
  - 1/0.7855 = $1.2731
  - So 1 pound will get $1.2731
At 0.7925 the Dealer sells $1 and you buy it
- So this is a ask rate for $
- When dealer sells $ he buys Pound so it is also the bid for Pounds
- If 0.7925 pounds buy $1 so how many $ are needed to buy 1 pound
  - 1/0.7925 = $1.2618
  - So 1 pound will get $1.2618
So the Bid ask quote is 1.2618-1.2731
While the rate in the other market is 1.4475- 1.4755.
- This is the rate for pounds.
- the dealer buys pounds for 1.4475 and the dealer sells the pound for 1.4755
- When the dealer buys pound he sells $ and when he sells pound he will buy $
It is better to buy dollar and sell pound so the dealer will buy pound and sell the dollar
- So we have to look at the bid rate of 0.7855
- The $ rate will be 1.2731
- So you sell the $ at 1.4755 and the dealer buys $

jeff jeffy answered 1 year ago

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