Scribd
Upload
7 views2 pages

Currency Trading Terms and Calculations

The document defines terms related to foreign exchange rates including bid, ask, spread, pips, spot rate, forward rate, cross rate, and reciprocal rate. It then provides an example to calculate bid/ask percentage spread for Mexican peso transactions. Finally, it includes examples to calculate currency exchange amounts for different circumstances including purchasing pounds, selling dollars for ringgit, and selling dollars for pounds.

Uploaded by

Chia Pei Jun
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
7 views2 pages

Currency Trading Terms and Calculations

The document defines terms related to foreign exchange rates including bid, ask, spread, pips, spot rate, forward rate, cross rate, and reciprocal rate. It then provides an example to calculate bid/ask percentage spread for Mexican peso transactions. Finally, it includes examples to calculate currency exchange amounts for different circumstances including purchasing pounds, selling dollars for ringgit, and selling dollars for pounds.

Uploaded by

Chia Pei Jun
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Tutorial 2

1. Define the following terms:

i) Bid-The exchange rate where one sells the commodity currency to the dealer

Ask-The exchange rate where one buys the commodity currency from the dealer

Spread-The difference between ask and bid rates, normally taken to be the profit
the dealer earns from trading the commodity currency

Pips-The smallest denomination in the exchange rate (i.e. the last quoted
decimal)

ii) Spot rate-The current exchange rate / the exchange rate today

Forward rate-The rate quoted in the forward contract, entered into today but to be
exchanged at a later date

Cross rate-A derived exchange rate from two existing exchange rate

Reciprocal rate-The inverse of the given the exchange rate

Example: USD/MYR is MYR/USD

2. Bid/ask Spread. Compute the bid/ask percentage spread for Mexican peso retail transactions
in which the ask rate is $0.11/MXP and the bid rate is $0.10/MXP.

Answer:

Percent spread:

Ask price – Bid price / Ask price x 100

=[($0.11-$0.10) / $0.11)] x 100 = 0.091 or 9.1%


3. Bid and Ask Quotation. The following information is provided by a retail bank in Kuala
Lumpur. There are several different exchange rate circumstances for currency transaction.

Bank Quotation Bid Ask


British pounds 5.4550 5.4860
US dollars 4.0680 4.1100

Calculate based on the given information for the different exchange rate circumstances for currency
transaction.

i) A customer wants to purchase £1,000,000 for an import shipment due. Estimate the amount that
customer must pay in ringgit for this transaction.

Answer:

Using ask rate = 5.5860


Total RM = RM5.4860 x 1,000,000
=RM5,486,000

ii) An exporting customer wishes to sell USD800,000 for ringgit. Calculate the amount that
customer will receive.

Answer:

Using bid rate = RM4.0680


Total RM = $800,000 x RM4.0680
=RM3,254,400

iii) Mr Ali wishes to sell USD2,000,000 for pounds. Determine the amount Mr Ali will receive.

Answer:

1) Sell $ for RM using bid rate


$2,000,000 = $2,000,000 x RM4.0680
=RM8,136,000

2) Buy £ with RM using ask rate


Total £=RM8,136,000 / RM5.4860
= £1,483,047.76

You might also like