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CFA Level I · CFA Level I Exam · Exchange Rate Calculations

A dealer quotes EUR/USD at 1.0840/1.0846 (bid/ask), where EUR is the base currency. A client wants to sell EUR 2,000,000 to the dealer. The amount of USD the client most likely receives is closest to:

The client receives about USD 2,168,000. A dealer buys the base currency at the bid price, so EUR 2,000,000 multiplied by the bid of 1.0840 gives USD 2,168,000. The ask of 1.0846 applies only when the client buys euros.

  1. AUSD 2,168,000Correct
  2. BUSD 2,169,200
  3. CUSD 2,170,400

Explanation

The dealer buys the base currency (EUR) at the bid, so the client receives 2,000,000 × 1.0840 = USD 2,168,000. Using the ask of 1.0846 gives USD 2,169,200, which is the price at which the dealer sells EUR, not buys it.

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