Question

1. If you need to buy 1,000,000 in your local currency for business when your bank provides the following bid-ask rates: 1.3895/USD-1.3905/USD, what will be the dollar value after purchase?

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Answer 1

Buy rate per $ rate = 1.3905

We need to convert this into per local Rate

Local Rate = 1/dollar rate = 1 / 1.3905 = 0.7192 / $

Dollar value =Amount in local currency * Local rate

Dollar value = 10,00,000 * 0.7192 = $719200

Dollar value after purchase = $719200

Note: Sale rate = 1.3895 / $ & Buy rate = 1.3905 / $

As we have to buy local currency so we will choose buy rate for local currency.  Here rate given is $ rate which need to convert into local currency rate by dividing with 1.