Ch3 & 4_s.pptx

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  Ch3 & 4 ( Bid/Ask spread, foreign exchange quotations)Exchange Rate Determination  Outcomes ã Understand how exchange rates are quoted ã Know the factors that affect exchange rates  Bid Ask Spread ã You had HKD10,000 for a trip in U.K. ã You just exchanged the HKD for Pound Sterling at Hang Seng Bank ã Minutes later, your friend called and said she could not go with you. ã You cancelled you trip and exchanged the Pound Sterling back into HKD right away, how much HKD can you get back assume the bank charges you no commission fee? ã What if you repeat the above process with another bank, would you get back the same amount of HKD? ã Would you get more if you do it in the airport?  Foreign Exchange Quotations  At any given point in time, a bank’s bid (buy) quote for a foreign currency will be less than its ask (sell) quote.  Bid/Ask spread of banks : The bid/ask spread covers the bank’s cost of conducting foreign exchange transactions.  Comparison of Bid/Ask spread among currencies ( Exhibit 3.1) 4 Foreign Exchange Market (6 of 13) rateAsk rateBidrateAsk spreadask / Bid  
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