CFA Level I · CFA Level I Exam · Exchange Rate Calculations
A dealer quotes EUR/USD at 1.0850/1.0854. The quote is expressed as USD per 1 EUR. A client wants to sell euros to the dealer. The rate at which the client most likely transacts is:
The client transacts at 1.0850. The first number in a quote is the dealer's bid for the base currency, EUR. Since the client is selling euros to the dealer, the dealer buys at its bid, so the client receives 1.0850 USD per euro.
- A1.0850Correct
- B1.0852
- C1.0854
Explanation
In a direct quote for the base currency EUR, the bid (1.0850) is the price at which the dealer buys EUR. A client selling euros sells to the dealer at the dealer's bid. The ask of 1.0854 is what the client pays when buying euros.
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