Lect09-International Financial Markets-VineyChptr15

# E home ccy as product one unit for example in

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: he number of Euros per unit of US\$ e.g. E 0.77 / US\$1 unit – ‘Empire’ nations (such as the UK, Australia, NZ, etc.) will Empire’ usually quote exchange rates as units of foreign currency per whole unit of home currency i.e. the indirect method. indirect (i.e. home CCY as “product” – one unit) • For example in Australia we typically see exchange rates: For Indirect method: US\$0.76 / A\$1, E0.59 / A\$1, £0.41 / A\$1. Direct method: A\$1.32 / US\$1, A\$1.69 / E1, A\$2.43 / £1. 13 Spot Market Quotations Spot • Transposing spot quotations (i.e. direct to indirect quotes and vice versa) Transposing – Example: Given a quotation of EUR/AUD1.6155– 1.6165 the AUD/EUR quotation can be determined by 6165 transposing the quotation, i.e. ‘reverse and invert’ ‘reverse Reverse the bid and offer prices: 1.6165–1.6155 1. Then take the inverse (divide both numbers into 1) ake inverse 1.000 1.000 1.000 1.6165 1.6155 1. AUD/EUR0.6186–0.6190 (Take note now that AUD takes 1 unit here) 6190 14 Transaction Costs Transaction • The bid-ask spread is based on the breadth The and depth of the market for that currency, as well as its volatility. well • This is the profit earned by foreign This exchange dealers in return for the foreign...
View Full Document

## This document was uploaded on 02/13/2014.

Ask a homework question - tutors are online