Question on converting Currency

CFA Level II Economics
#1

Hi all,

I am studying level II and I have encountered the cross rate section and I don’t under stand why we need to do that

For example, If the spread of USD/EUR= 1.1503 - 1.1507

If we want to get the Bid for EUR/USD , we need to use 1 divided by the Ask(Offer) rate of USD/EUR $1.1507.

I don’t under why it is not 1 divided by the bid rate of USD/EUR which is $1.1503 ?

Please help me to understand the methodology behind this. Much appreciate.

#2

Which is smaller: 1/1.1503 or 1/1.1507?

The smaller is the bid, the larger is the ask.

The other way to look at it is that if the dealer is buying EUR (bid), he’s selling USD (ask), and if he’s selling EUR (ask), he’s buying USD (bid).

#3

Got it. Really appreciate your help. Thank you

#4

My pleasure.