CFA Practice Question

There are 247 practice questions for this topic.

CFA Practice Question

Given the spot rate quotes in the interbank market:
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

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.

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)
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