Question

The foreign exchange department of Bank of America has a bid quote on Canadian dollars (C$) of C$1.1448/$. If the bank typically tries to make a bid-ask spread of 0.5 percent on these foreign exchange transactions, what will the ask rate have to be? (Round answer to 2 decimal places, e.g. 52.75.)

Answer 1

Based on the bid quote given on the Canadian dollar, and the bid-ask spread, the ask rate would be $1.15.

What is the ask rate?

When given the bid-ask spread and the bid quote, the ask rate is:

= Bid quote x ( 1 + bid-ask spread)

Solving gives:

= 1.1448 x (1 + 0.5%)

= 1.1448 x 1.005

= 1.150524

= $1.15 2 d.p.

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