3.7. TEST YOUR UNDERSTANDING 117
2.6 Test Your Understanding
2.6.1 Quiz Questions
- Using the following vocabulary, complete the text: forward; market maker or
broker; shopping around; spot; arbitrage; retail; wholesale.
“When trading on the foreign exchange markets, the Bank of Brownsville
deals with a (a) on the (b) tier, while an individual uses the (c) tier. If the
bank must immediately delivereur2 million to a customer, it purchases them
on the (d) market. However, if a customer needs theeurin three months, the
bank buys them on the (e) market. In order to purchase theeuras cheaply
as possible, the bank will look at all quotes it is offered to see if there is an
opportunity for (f). If the bank finds that the quotes of two market makers
are completely incompatible, it can also make a risk-free profit using (g).” - From a Canadian’s point of view, which of each pair of quotes is the direct
quote? Which is the indirect quote?
(a)cad/gbp2.31;gbp/cad0.43
(b)usd/cad0.84;cad/usd1.18
(c) cad/eur1.54;eur/cad0.65- You are given the following spot quote:eur/gbp1.5015-1.5040
(a) The above quote is for which currency?
(b) What is the bid price foreurin terms ofgbp?- You read in your newspaper that yesterday’s spot quote wascad/gbp2.3134-
2.3180.
(a) This is a quote for which currency?
(b) What is the ask rate forcad?
(c) What is the bid rate forgbp?- A bank quotes the following rates. Compute theeur/jpybid cross-rate (that
is, the bank’s rate for buyingjpy).
Bid Ask
eur/cad 0.64 0.645
cad/jpy 0.01 0.012 - A bank quotes the following rates:chf/usd2.5110-2.5140 andjpy/usd245–
246. What is the minimumjpy/chfbid and the maximum ask cross rate that
the bank would quote?