Table of Contents
CFA Level 2 – Economics, Session 4 – Reading 18
Currency Exchange Rates – LOS c
(Practice Questions, Sample Questions)
1. Given an exchange rate of CAD:USD 0.9250 and CHF:USD 1.6250 what is exchange rate quoted in CHF:CAD?
A) 1.7568. [Explanation: (CHF:USD 1.6250) / (CAD:USD 0.9250) = CHF:CAD 1.7568]
B) 0.5692.
C) 1.5032
2. Given the following quotes, USD:GBP 2.0000 and USD:MXN 8.0000, calculate the direct GBP:MXN spot cross exchange rate.
A) 0.6250.
B) 4.0000. [Explanation:If we had 1 GBP we could buy 0.50 USD. That 0.50 USD would buy 4 Pesos. Alternately, you can invert the first quote to read GBP:USD 0.5000. Then, 0.5000GBP:USD x 8.0000USD:MXN = 4.0000GBP:MXN]
C) 0.2500
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3. A bank in Canada is quoting USD:CAD bid 1.4950 ? ask 1.5005, and EUR:USD bid 0.9350 ? ask 0.9400. What is exchange rate bid and ask for EUR:CAD?
A) EUR:CAD 1.5904 ? 1.6048.
B) EUR:CAD 0.6254 ? 0.6264.
C) EUR:CAD 1.3978 ? 1.410 [Explanation:First invert the EUR:USD quote by 1 / 0.9350 = 1.0695 and 1 / 0.9400 = 1.0638 for a quote of USD:EUR 1.0638 ? 1.069. Then set up a bid-ask matrix.
1.4950 / 1.0695 = EUR:CAD 1.3978
1.5005 / 1.0638 = EUR:CAD 1.4105
The EUR:CAD bid-ask quote is 1.3978 ? 1.4105]
4. An analyst observes that the exchange rate for Mexican pesos is USD:MXN 8.0000, and the exchange rate for Polish zlotys is USDLN 6.0000. The PLN:MXN exchange rate is closest to:
A) 0.7500.
B) 1.3333. [Explanation:The cross rate of PLN:MXN is (USD:MXN 8) / (USDLN 6) = 1.3333 PLN:MXN]
C) 14.0000
5. The current spot rates for currency exchange are as follows: USD:THB 0.02240 and THB:AUD 23.89923. What is the AUD:USD spot cross exchange rate?
A) 0.00094.
B) 1.86796. [Explanation:The AUD:USD cross rate is calculated in the following manner:
Step 1: Multiply the two quotes together (THB will cancel out) to obtain USD:AUD as follows: USD:THB 0.02240 × THB:AUD 23.89923 = USD:AUD 0.53534.
Step 2: Take the reciprocal of this result to obtain AUD:USD as follows: 1 / USD:AUD 0.53534 = AUD:USD 1.86796
An alternative calculation method is as follows:
Step 1: Take the reciprocal of the USD:THB quote as: 1 / USD:THB 0.02240 = THB:USD 44.64286
Step 2: Divide this result by the THB:AUD quote as: THB:USD 44.64286 / THB:AUD 23.89923 = AUD:USD 1.86796]
C) 0.53534
6. If the CAD is trading at CAD:USD 0.6403 and the GBP is trading GBP:CAD 2.5207, the GBP:USD exchange rate is:
A) GBP:USD 1.6140. [Explanation:(CAD:USD 0.643) × (GBP:CAD 2.5207) = GBP:USD 1.6140]
B) GBP:USD 0.6196.
C) GBP:USD 3.9367
7. If the spot exchange rate between the British pound and the U.S. dollar is USD:GBP 0.7775, and the spot exchange rate between the Canadian dollar and the British pound is GBP:CAD 1.8325, what is the CAD:USA spot cross exchange rate?
A) 0.70186. [Explanation:First, convert USD:GBP 0.7775 to 1/0.7775 = GBP:USD 1.28617. Then, divide GBP:USD 1.28617 by GBP:CAD 1.8325 = CAD:USD 0.70187]
B) 1.42477.
C) 0.42428
