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Basic Question 1 of 19

The quote in the interbank USD/EUR spot market is 1.3231/1.3235. A dealer quotes a client a bid-offer of 1.3229/1.3238 for a spot USD/EUR transaction. Suppose a client hits the dealer's bid, the dealer should make a profit of ______ for every EUR transacted.

A. 0.0002.
B. 0.0003.
C. 0.0004.

User Contributed Comments 2

User Comment
jejemike If the client hits the dealer's bid, it means the dealer will buy 1 euro at 1.3229 from the client (dealer gives 1.3229 USD to the client and takes 1 euro).
The dealer will sell the 1 euro bought in the inter bank market at 1.3231 dollars, effectively earning a gain of 0.0002 per euro
Jagaahuu yep, u r right.
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I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes

Barnes

Learning Outcome Statements

calculate and interpret the bid-ask spread on a spot or forward foreign currency quotation and describe the factors that affect the bid-offer spread;

identify a triangular arbitrage opportunity and calculate its profit, given the bid-offer quotations for three currencies;

CFA® 2024 Level II Curriculum, Volume 1, Module 8.