Suppose the spot quote on the euro is $0.9302-18, and the spot quote o

Suppose the spot quote on the euro is $0.9302-18, and the spot quote on the Swiss franc is $0.6180-90. What is the direct spot quote for the Swiss franc in Frankfurt?

What will be an ideal response?

ANSWER

Answer: In order to sell one franc for euros, first you would sell the franc for $0.6180 and then convert $0.6180 into euros at the ask rate of $0.9318. Thus the bid rate for the franc is 0.6180/0.9318 = €0.6632. Similarly, to acquire one franc, you must sell euros for dollars and then sell dollars for francs. Specifically, it costs $0.6190 to by one euro. Because one euro can be converted into $0.9302, it takes €0.6190/0.9302 = €0.6654 to buy $0.6190. Thus the ask rat for francs is €0.6654. The bid-ask quote on the franc in Frankfurt is therefore €0.6632-54.