- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 8. Currency Exchange Rates: Understanding Equilibrium Value
- Subject 1. Foreign Exchange Spot Markets

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**CFA Practice Question**

Given the spot rate quotes in the interbank market:

USD/AUD: 1.0339 - 1.0348, USD/NZD: 0.8248 - 0.8286

B. 0.8535 - 0.8567.

C. 0.7971 - 0.8014.

USD/AUD: 1.0339 - 1.0348, USD/NZD: 0.8248 - 0.8286

What is the implied bid-ask AUD/NZD cross rate?

A. 0.7978 - 0.8007.

B. 0.8535 - 0.8567.

C. 0.7971 - 0.8014.

Correct Answer: C

Buy 1 NZD with 0.8286 USD? we would need 0.8286 / 1.0339 = 0.8014 AUD.

So the implied bid-ask cross rate is 0.7971 - 0.8014.

Sell 1 NZD and get 0.8248 USD, then get 0.8248/1.0348 = 0.7971 AUD.

Buy 1 NZD with 0.8286 USD? we would need 0.8286 / 1.0339 = 0.8014 AUD.

So the implied bid-ask cross rate is 0.7971 - 0.8014.

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**User Contributed Comments**
5

User |
Comment |
---|---|

Gouldenone2 |
Some please explain how 1 NZD buys .8248 dollars!!! The quote shows 1 dollar buys .8248 NZD, how in the hell can we ever figure it out if the keep switching quotes. If it was NZD/USD .8248.... then 1 NZD would buy .8248 dollars...WTFFFFF |

Gouldenone2 |
Whatever is first is 1 dollar. So USD(1)/(buys) (.8248)NZD whether indirect or direct the first one is always worth one!!!!!!! Schweser does the same thing and I dont get it. So if you sell one NZD bid ask aside, you will roughly get 1.21 dollars!! Some please tell me how this problem makes any sense |

bablig |
Please think from an inter bank perspective. You buy low and sell high to pocket a profit in the market. When you sell 1 NZD, essentially you are selling at the inter bank buying quote which is 0.8248 USD |

jejemike |
rule of thumb implied bid quote(x/y)= bid(x/z) * bid(z/y) = bid(x/z) * 1/offer(y/z) |

skarthi146 |
Gouldenone2, In CFA Curriculum: the way currency are quoted as "price ccy / base ccy": what is the price of 1 unit of base ccy in terms of price ccy. So, in USD/NZD quote, the rate given is the price you pay (or get) in USD per 1 unit of NZD. (it means for 1 unit of NZD, customers can get 0.8248 USD or customer can get 1 unit of NZD by paying USD 0.8286) |