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CMA Final · Strategic Financial Management · Foreign Exchange Market

A dealer quotes EUR/USD at 1.0800/1.0820 and USD/INR at 83.00/83.10. A customer wants to buy EUR against INR (the bank sells EUR). What is the bank's EUR/INR cross rate for this transaction?

The bank's selling rate for EUR/INR is about 89.91. Since the bank sells euros and the dollars needed to do so, both legs use ask rates: 1.0820 multiplied by 83.10 equals 89.914. Bid times bid, 89.64, applies when the bank buys euros.

  1. A89.64
  2. B89.91Correct
  3. C89.82
  4. D89.73

Explanation

The bank sells EUR, so it uses the ask rates on both legs: EUR/USD ask 1.0820 x USD/INR ask 83.10 = 89.9142, about 89.91. Using bid x bid gives 89.64, which is the rate for the bank buying EUR.

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