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A businessman has just completed transactions in Italy and England. He is now holding 250,000 EUR and
500,000 and wants to convert to USD
His currency dealer provides this quotations
GBP / USD => 0.5025 - 76
USD / EUR => 1.4739 - 44
E0R 2Su,uuu 1.47S9
0SB
E0R
= S68,47S
E0R 2Su,uuu 1.4744
0SB
E0R
= S68,6uu
Always going to get the lower amount so you'll most likely get the first quote
uBP Suu,uuu u.Su76
uBP
0SB
= 98S,u27
You divide by the largest quote because it'll give you the smallest answer
Let s r evis it t h e bid - a s k
If you have agreed to sell something you are short
Short = sell
If you have agreed to buy something you are long
Long = buy
Let s look in t o lon gs a n d s h or t s
Pa yoff Pr ofiles
Class 2
[Prezi]
Monday,January30,2012
Finance Page 1
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Let s con s id er t h e followin g t a bles
EUR/ USD GBP/ USD USD/ J PY
FWD Ra t e $ 1.3133 $ 1.5679 J PY 76.7105
A $ 1.4000 $ 1.6000 J PY 77.00
B $ 1.2000 $ 1.5000 J PY 75.00
How much money does a long EUR and GBP make in cases A & B. A long agrees to buy EUR and GBP -
How much does a short EUR and GBP make in A & B -
Finance Page 2
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Sellin g @ 1.3133
Bu yin g @ 1.4
Los s = 0.0867
Sh or t ( Ca s e A)
Sh or t ( Ca s e B)
Sellin g @ 1.3133
Bu yin g @ 1.2
Pr ofit = +0.1133
Cor r es p on d en t Ba n kin g Rela t ion s h ip s
Lon g ( Ca s e A)
Sellin g @ 1.4
Bu yin g @ 1.3133
Pr ofit = +0.0867
Lon g ( Ca s e B)
Sellin g @ 1.2
Bu yin g @ 1.3133
Los s @ 0.1133
Finance Page 3
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Finance Page 4