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Lect09-International Financial Markets-VineyChptr15

# 786269 gbpusd 1917075 attempt yourself use example 4

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Unformatted text preview: Spread, using transposing in slide 14, revert & invert) Step 3: AUD/GBP bid = AUD/USD x USD/GBP = 0.9262 x 1/1.9775 = 0.4684 Step 4: AUD/GBP offer = AUD/USD x USD/GBP = 0.9269 x 1/1.9770 = 0.4688 Thus AUD/GBP = 0.4684 -- 88 15-27 Lecture Example: Cross Rates • Calculating cross-rates (cont.) – Calculate the AUD/GBP cross rate in the following example. AUD/USD 0.7862–69 GBP/USD 1.9170–75 (Attempt yourself!!! Use example 4 earlier.) 28 • Calculating cross-rates (cont.) – Example 4: Crossing two indirect FX quotations: Step by Step Approach: To get AUD/GBP Step 1: Step 1: AUD/GBP = AUD/USD x USD/GBP = AUD/USD x transposing of GBP/USD to USD/GBP Step 2: Transposing GBP/USD to USD/GBP = 1/1.9175 --- 1/1.9170 (Bid – Offer Spread, using transposing in slide 14, revert & invert) Step 3: AUD/GBP bid = AUD/USD x USD/GBP = 0.7862 x 1/1.9175 = 0.4100 Step 4: AUD/GBP offer = AUD/USD x USD/GBP = 0.7869 x 1/1.9170 = 0.4105 Thus AUD/GBP = 0.4100 -- 05 15-29 4. Equilibrium Relationships Interest Rate Parity (IRP) • States that the relative interest rates between countries will determine the ratio of th...
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