- CFA Exams
- CFA Exam: Level II 2021
- Study Session 4. Economics
- Reading 10. Currency Exchange Rates: Understanding Equilibrium Value
- Subject 1. Foreign exchange spot markets
CFA Practice Question
The JPY/USD bid-ask rate observed in Tokyo is 80.4750 - 80.4883. An analyst just came up with an implied JPY/USD bid-ask rate based on EUR/USD and JPY/EUR rates. Which of the following implied bid-ask rate would seem to be wrong?
B. 80.4800 - 80.4900.
C. 80.4742 - 80.4748.
A. 80.4550 - 80.4795.
B. 80.4800 - 80.4900.
C. 80.4742 - 80.4748.
Correct Answer: C
Notice the ask rate in C (80.4748) is lower than the directly observed bid rate of 80.4750, which is impossible.
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