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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
usually quote exchange rates as units of foreign currency
per whole unit of home currency i.e. the indirect method.
(i.e. home CCY as “product” – one unit) • For example in Australia we typically see exchange rates:
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
• Transposing spot quotations (i.e. direct to indirect quotes and vice versa)
– Example: Given a quotation of EUR/AUD1.6155–
1.6165 the AUD/EUR quotation can be determined by
transposing the quotation, i.e. ‘reverse and invert’
Reverse the bid and offer prices: 1.6165–1.6155
Then take the inverse (divide both numbers into 1)
AUD/EUR0.6186–0.6190 (Take note now that AUD takes 1 unit here)
14 Transaction Costs
• The bid-ask spread is based on the breadth
and depth of the market for that currency, as
well as its volatility.
• This is the profit earned by foreign
exchange dealers in return for the foreign...
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This document was uploaded on 02/13/2014.
- Fall '13