From Kaplan:
I am having a hard time understanding the rules for computing the final answer. I clearly understood FX in the Econ Level 1 section. My brain needs a kickstart here.
I am having a hard time understanding the rules for computing the final answer. I clearly understood FX in the Econ Level 1 section. My brain needs a kickstart here.
If you have CAD and want to buy EUR, the bank will charge you the higher CAD/USD price to sell you USD, then charge you the higher USD/EUR price to sell you EUR.
If you have EUR and want CAD, the bank will pay you the lower USD/EUR price to buy your EUR, then pay you the lower CAD/USD price to buy your USD.
I get it now. We multiple the bid quotes, which leads to crossing out the USD. Likewise for the ask quotes. Hence the products form the bid/ask spread for the CAD/EUR.
Bingo!
New question, same Learning Objective:
Why invert the ASK, .69686 GBP/USD which equals 1.435 USD/GBP? From there the inverted quotient is multiplied with the 1.59031 CAD/USD ASK, to get the 2.2821 CAD/GBP BID.
My mistake was inverting the .69459 GBP/USD BID.
GBP/USD ask ↔ USD/GBP bid, and vice versa.
Think about it.
We invert the ASK because, by default, that is the BID. Am I correct?
Not so much by default as by reasoning.
But, yes.
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