Suppose the quotation between the U.S. dollar and the Russian ruble (₽) is USD/RUB120.4783/883. What can we infer from this quote? Choose all that apply.Question 5Answera.A client can only buy $1 for ₽120.4883 and sell $1 for ₽120.4783.b.The bid-ask spread is 100 pips, or 0.01%.c.A dealer is willing to sell $1 for ₽120.4783, which is below a client’s willingness of buying $1 for ₽120.4883.d.Order costs, inventory costs, and the competition in the FX market can all negatively influence the size of bid-ask spread.
Question
Suppose the quotation between the U.S. dollar and the Russian ruble (₽) is USD/RUB120.4783/883. What can we infer from this quote? Choose all that apply.Question 5Answera.A client can only buy 1 for ₽120.4783.b.The bid-ask spread is 100 pips, or 0.01%.c.A dealer is willing to sell 1 for ₽120.4883.d.Order costs, inventory costs, and the competition in the FX market can all negatively influence the size of bid-ask spread.
Solution
The quotation USD/RUB120.4783/883 implies the following:
a. This statement is incorrect. A client can buy 1 for ₽120.4783. The first number (120.4783) is the bid price, which is the price a dealer is willing to pay to buy the currency. The second number (120.4883) is the ask price, which is the price a dealer is willing to sell the currency.
b. The bid-ask spread is indeed 100 pips, or 0.01%. The bid-ask spread is the difference between the bid price and the ask price. In this case, it is 120.4883 - 120.4783 = 0.01, or 100 pips.
c. This statement is correct. A dealer is willing to sell 1 for ₽120.4783.
d. This statement is also correct. Order costs, inventory costs, and competition in the FX market can all negatively influence the size of the bid-ask spread. These factors can increase the cost of trading, which can in turn widen the bid-ask spread.
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