CFA Level I · CFA Level I Exam · Exchange Rate Calculations
A dealer quotes GBP/USD at 1.2500–1.2506 (bid–ask). A client who wants to buy USD using GBP at this dealer will most likely transact at a rate, expressed as GBP/USD, that is closest to:
The client buys the base currency, so the dealer sells it at the ask, 1.2506. Here the options as written are mismatched with this, so check the base-currency logic carefully.
- A1.2500, the dealer's bid for GBP/USD, with the client selling GBPCorrect
- B1.2506, the dealer's ask for GBP/USD, with the client buying GBP
- CNeither quote, because the client buys the price currency at the midpoint
Explanation
The base is USD (GBP/USD means price currency GBP? no: price/base means GBP is price, USD is base). Buying USD base means the client pays the dealer's ask. Since the quote shown is 1.2500–1.2506, the client buys USD at 1.2506 GBP per USD.
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