tributos aduaneros
International Financial Management – Workshop – Bid Ask Spread
Questions 8, 9, 10 page 136
8. A CD/$ bank trader is currently quoting a small figure bid-ask of 35-40, when the rest of the market is trading at CD 1.3436-CD 1.3441. What is implied about the trader's beliefs by his prices?
Big Figure
Small Figure
Trader
34
35 to 40
Rest of market
34
36 to 41
The trader believe the CD will soon depreciate against the USD, so he is offering a bid-ask spread below the market bid-ask spread in order to sell CD and thus lower his inventory of CD.
9. What is-'triangular arbitrage? What is a condition that will give rise to a triangular arbitrage opportunity?
Triangular arbitrage is the process of trading out of the U.S. dollar into a second currency, then trading it for a third currency, which is in turn traded for U.S. dollars. The purpose is to earn an arbitrage profit via trading from the second to the third currency when the direct exchange rate between the two is not in alignment with the cross-exchange rate.
The main conditions that will give rise to a triangular arbitrage opportunity is when some banks trades non-dollar currencies pricing them at a narrower bid-ask spread than the natural cross-rate spread.
10. Over the past five years, the exchange rate between the British pound and the U.S. dollar, $/£, has changed from about 1.90 to about 1.45. Would you agree that over this five-year period, British goods have become cheaper for buyers in the United States?
Yes! 5 years ago, 1 GBP was worth 1.90 USD and today 1 GBP is worth 1.45 USD, the GBP was stronger against the USD 5 years ago than today.
Let’s take a simple example:
5 years ago a British product cost let’s say GBP 100, an American citizen would need 100*1.90 to buy it, this is 190 USD.
The same product has the same price today GBP 100 but today an American citizen need only 100*1.45, or USD 145 to buy it.
So it became cheaper for the American citizen to buy the same product
Questions 8, 9, 10 page 136
8. A CD/$ bank trader is currently quoting a small figure bid-ask of 35-40, when the rest of the market is trading at CD 1.3436-CD 1.3441. What is implied about the trader's beliefs by his prices?
Big Figure
Small Figure
Trader
34
35 to 40
Rest of market
34
36 to 41
The trader believe the CD will soon depreciate against the USD, so he is offering a bid-ask spread below the market bid-ask spread in order to sell CD and thus lower his inventory of CD.
9. What is-'triangular arbitrage? What is a condition that will give rise to a triangular arbitrage opportunity?
Triangular arbitrage is the process of trading out of the U.S. dollar into a second currency, then trading it for a third currency, which is in turn traded for U.S. dollars. The purpose is to earn an arbitrage profit via trading from the second to the third currency when the direct exchange rate between the two is not in alignment with the cross-exchange rate.
The main conditions that will give rise to a triangular arbitrage opportunity is when some banks trades non-dollar currencies pricing them at a narrower bid-ask spread than the natural cross-rate spread.
10. Over the past five years, the exchange rate between the British pound and the U.S. dollar, $/£, has changed from about 1.90 to about 1.45. Would you agree that over this five-year period, British goods have become cheaper for buyers in the United States?
Yes! 5 years ago, 1 GBP was worth 1.90 USD and today 1 GBP is worth 1.45 USD, the GBP was stronger against the USD 5 years ago than today.
Let’s take a simple example:
5 years ago a British product cost let’s say GBP 100, an American citizen would need 100*1.90 to buy it, this is 190 USD.
The same product has the same price today GBP 100 but today an American citizen need only 100*1.45, or USD 145 to buy it.
So it became cheaper for the American citizen to buy the same product