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Lect09-International Financial Markets-VineyChptr15

The difference is the dealers profit margin called

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Unformatted text preview: dealers exchange risk they bear. exchange • Usually stated as the percentage spread: Usually Bid Price – Ask Price Bid X 100 Spread = Bid Price Bid 15 A dealer’s spot exchange rate for a foreign currency actually comprises two relevant rates: the dealer’s buy and sell rates for that foreign buy sell currency. The difference is the dealer’s profit margin (called the spread). spread Set Exchange Rates for $A1 as at 5/10/2010 (retail) (1) CUSTOMER BUYS FOREIGN CURRENCY (2) CUSTOMER BUYS HOME CURRENCY AND BID-ASK AND SELLS HOME (ASK) SELLS FOREIGN (BID) SPREAD (%) US dollars (USD) 0.9540 0.9830 2.950% UK pounds (GBP) 0.5977 0.6267 4.627% Japan yen (JPY) Europe euro (EUR) 78.71 82.70 4.825% 0.6900 .7250 4.828% Singapore dollar (SGD) 1.2374 1.3077 5.376% Thai Baht (THB) 27.51 30.61 10.127% Samoa tala (WST) 2.1153 2.4837 14.833% CURRENCY A customer would buy US$0.9540 customer from the dealer at a cost of A$1 (i.e. the customer pays A$1). The dealer is willing to pay (sell) dealer US$0.9540to get A$1. (not the convenient way of thinking here – should be the other way round.) A customer must sell US...
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