CFA Level I Exam · Exchange Rate Calculations

Bid-Ask Spreads and Dealer Quotes in Currency Markets

Q: What is the difference between the bid and ask exchange rate?

The bid is the price at which a dealer buys the base currency. The ask, or offer, is the price at which the dealer sells it. The ask is always higher, and the gap is the dealer's spread.

Q: How do you invert a bid-ask exchange rate quote?

Take the reciprocal of each side and swap them. The new bid is 1 ÷ the old ask, and the new ask is 1 ÷ the old bid. This keeps the ask above the bid.

Q: How do you calculate the bid-ask spread in a currency quote?

Subtract the bid from the ask. You can express it in pips, in price-currency units, or as a percentage of the ask or mid price. Use the form the question asks for.

Q: Why are some currency spreads wider than others?

Spreads widen with lower liquidity, larger trade sizes and higher volatility. Major pairs such as EUR/USD usually have narrow spreads because many dealers compete.

Updated 7 October 2026 · Fact-checked

A dealer quotes two prices: the bid, where the dealer buys the base currency, and the ask (offer), where the dealer sells it. The spread is ask minus bid. To invert a quote, take the reciprocal and swap the two: new bid = 1 ÷ old ask, new ask = 1 ÷ old bid.

Understand Bid-Ask Spreads and Dealer Quotes

A currency dealer makes money by buying low and selling high. So every quote has two prices. The bid is the price at which the dealer will buy the base currency from you. The ask (also called the offer) is the price at which the dealer will sell the base currency to you. The ask is always higher than the bid.

In a quote written A/B = 1.2500 - 1.2504, A is the base currency and B is the price currency. The numbers tell you how many units of B you pay or receive for one unit of A. Always read the quote from the dealer's side: the dealer buys A at the bid and sells A at the ask.

The bid-ask spread is the difference between ask and bid. It is the dealer's compensation and your transaction cost. Spreads are narrow for liquid pairs such as EUR/USD and wider for thinly traded currencies, larger trade sizes, and volatile markets. Spreads are often quoted in pips (the last decimal place, usually 0.0001), and sometimes as a percentage of the ask or mid price.

Sometimes you need the quote the other way round. If you have USD/EUR and need EUR/USD, you cannot just take the reciprocal of each side in place. When you buy the base currency of one quote, you are selling the base currency of the other. So the inverted bid comes from the original ask, and the inverted ask comes from the original bid. This keeps the ask above the bid.

A useful check: after inversion, the ask must still be greater than the bid. If your inverted bid is larger than your inverted ask, you did not swap.

Key formulas to remember

Bid-ask spread (absolute): Spread = Ask − Bid; Quoted in price-currency units per unit of base currency. One pip is usually 0.0001.
Spread as a percentage: Spread % = (Ask − Bid) ÷ Ask × 100; Some questions divide by the mid price instead. Use the base the question states; if none, use the ask.
Inverting a bid-ask quote: For A/B = Bid - Ask: B/A bid = 1 ÷ Ask(A/B); B/A ask = 1 ÷ Bid(A/B); Reciprocal and swap. The inverted ask must exceed the inverted bid.
Dealer's side rule: Dealer buys base at the bid; dealer sells base at the ask; You, the client, do the opposite: you sell base at the bid and buy base at the ask.

How to solve Bid-Ask Spreads and Dealer Quotes questions

Use this method for any bid-ask question, whether it asks for a spread, a transaction, or an inverted quote.

1Identify the base currency (the first one in A/B) and the price currency (the second).
2Write the quote as Bid - Ask and confirm the ask is the larger number.
3Decide which side of the trade you are on. You sell the base at the bid and buy the base at the ask. The dealer does the reverse.
4For a spread, compute Ask − Bid. Convert to pips or a percentage only if asked.
5For an inverted quote, take 1 ÷ Ask for the new bid and 1 ÷ Bid for the new ask.
6If you must convert an amount, first decide which case applies. If the client sells the base currency, multiply the base amount by the bid to get price currency (the dealer buys the base at the bid). If the client buys the base currency using price currency, divide the price-currency amount by the ask to get base currency (the dealer sells the base at the ask). In both cases the client gets the price that is worse for them.
7Sanity check: the new ask is above the new bid, and you got the worse of the two prices.

Quickest way: Worse-price and swap shortcut

When to use it: Use it for MCQs where you must pick the correct inverted quote or the rate applied to a trade.

Ask yourself: which price is bad for me? You always get the worse one.
If you are buying the base, use the higher number (ask). If selling the base, use the lower number (bid).
For inversion, compute 1 ÷ larger number first. That is the new bid, the smaller result.
Compute 1 ÷ smaller number next. That is the new ask, the larger result.
Eliminate any option where the bid is above the ask. Options are listed smallest to largest, so check which values fit the bid and ask roles.
On the calculator, type the price, then press the reciprocal key (BA II Plus: press 2ND, then the 1/x function (x⁻¹) printed above its key; HP 12C: press the 1/x key).

Common mistakes in Bid-Ask Spreads and Dealer Quotes

Inverting each side in place, so the bid becomes 1 ÷ bid.
It feels natural to take the reciprocal of each number where it sits.
Fix: Swap as well. New bid = 1 ÷ old ask. New ask = 1 ÷ old bid. Check that the ask exceeds the bid.
Using the bid when you are buying the base currency.
Students forget that bid and ask are from the dealer's point of view.
Fix: Say it aloud: the dealer buys at the bid, sells at the ask. You get the opposite and always the worse price.
Confusing base and price currency in A/B.
The slash reads like a fraction, so the direction feels reversed.
Fix: A/B is the price of one A in B. Base is A. Label both before you calculate.
Computing the spread as bid − ask, giving a negative number.
Rushing and reversing the order.
Fix: The spread is always positive: ask minus bid. A negative result means you swapped them.
Miscounting pips.
Students count decimal places loosely, or treat a JPY quote the same as a USD quote.
Fix: For most pairs one pip is 0.0001. Spread of 0.0004 is 4 pips. Use the convention stated in the question.
Rounding the inverted quote too early.
Reciprocals produce long decimals.
Fix: Keep at least five or six decimals, and round only at the end to match the option format.

Worked examples

Example 1

A dealer quotes EUR/USD at 1.0850 - 1.0854. (a) What is the spread in pips and as a percentage of the ask? (b) A client sells EUR 2,000,000 to the dealer. How many USD does the client receive?

Show the solution

Spread = 1.0854 − 1.0850 = 0.0004, which is 4 pips.
Percentage of ask = 0.0004 ÷ 1.0854 × 100 = 0.03685%, about 0.037%.
The client sells the base (EUR), so the dealer buys at the bid, 1.0850.
USD received = 2,000,000 × 1.0850 = 2,170,000.

Answer: The spread is 4 pips (about 0.037% of the ask). The client receives USD 2,170,000.

Example 2

A dealer quotes USD/CHF at 0.9000 - 0.9010. What is the CHF/USD bid-ask quote?

Show the solution

The CHF/USD bid = 1 ÷ USD/CHF ask = 1 ÷ 0.9010 = 1.10988.
The CHF/USD ask = 1 ÷ USD/CHF bid = 1 ÷ 0.9000 = 1.11111.
Check: 1.10988 < 1.11111, so the ask exceeds the bid.
Spread in the inverted quote = 1.11111 − 1.10988 = 0.00123.

Answer: CHF/USD = 1.1099 - 1.1111 (rounded to four decimals).

Exam tips

Questions are three-option MCQs. A wrong option is often the in-place reciprocal (1 ÷ bid, 1 ÷ ask). Reject any option where the bid exceeds the ask.
Read which currency is the base before computing. The same numbers mean different trades if the quote is flipped.
In a transaction question, assume you receive the worse price and do not average bid and ask unless the question gives a mid-rate.
Do not over-round. Options can be close, so keep five decimals until the final step.
With about 90 seconds per question, use the swap shortcut and avoid long arithmetic when two options can be eliminated by logic.

Practice questions from Exchange Rate Calculations

Bid-Ask Spreads and Dealer Quotes in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

FRM Part IIMarket Liquidity and Bid-Ask Spreads

Bid-Ask Spreads and Dealer Quotes: frequently asked questions

What is the difference between the bid and ask exchange rate?

The bid is the price at which a dealer buys the base currency. The ask, or offer, is the price at which the dealer sells it. The ask is always higher, and the gap is the dealer's spread.

How do you invert a bid-ask exchange rate quote?

Take the reciprocal of each side and swap them. The new bid is 1 ÷ the old ask, and the new ask is 1 ÷ the old bid. This keeps the ask above the bid.

How do you calculate the bid-ask spread in a currency quote?

Subtract the bid from the ask. You can express it in pips, in price-currency units, or as a percentage of the ask or mid price. Use the form the question asks for.

Why are some currency spreads wider than others?

Spreads widen with lower liquidity, larger trade sizes and higher volatility. Major pairs such as EUR/USD usually have narrow spreads because many dealers compete.