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CMA Final · Strategic Financial Management · Foreign Exchange Market

The following quotes are available: USD/INR = 83.00 / 83.20 and EUR/USD = 1.0800 / 1.0850. A customer wants to buy EUR against INR through the cross rate (customer buys EUR, bank sells EUR). What EUR/INR rate will the bank apply?

The bank applies 90.2720. When it sells euros it uses the offer side of both quotes: EUR/USD 1.0850 multiplied by USD/INR 83.20 gives 90.272. The figure 89.64 is the bid cross used when the bank buys euros.

  1. A89.6400
  2. B90.2720Correct
  3. C89.6400 to 90.2720 mid, i.e. 89.9560
  4. D90.2800

Explanation

The bank sells EUR at the EUR/USD offer, 1.0850, and sells the USD needed at the USD/INR offer, 83.20. The cross offer is 1.0850 x 83.20 = 90.272. Option 89.64 (1.08 x 83.00) is the bid cross, applying to the bank buying EUR.

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