Assume you have £1000 and bid rate is 1.60$/£ and ask rate is 1.66$/£. If you...
Assume you have £1000 and bid rate is 1.60$/£ and ask rate is 1.66$/£. If you convert it to £ and then convert it back to $, what will happen? (Answer: $963.86 and lose $36.14. Sell low and buy high here. So sell £ at bid and buy £ at ask )
Homework Answers
It is assumed that the current holding is $1,000 and not £1,000 as stated in the problem since the exercise is to first convert to £.
Buying rate of £ = Ask rate ie., 1.66$/£
Therefore, £ received on conversion= $1,000/1.66 = £602.4096386
Selling rate £ = Bid rate ie., 1.60$/£
Therefore, $ received on re-conversion= £602.4096386*1.60 = $963.86.
Net impact (Loss)= $1,000 - $963.86 = Loss of $36.14
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Assume you have £1000 and bid rate is 1.60$/£ and ask rate is
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