Currency Cross Rates question

D

delhirocks

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
Given P the direct quotes in U.S. dollars for the Mexican peso (MXN) and the Peruvian nuevo sol (PEN), determine the MXN/PEN bid-ask cross rates. Select the closest correct answer.

USD/MXN Bid/Ask: 0.11001 - 0.11036
USD/PEN Bid/Ask: 0.28818 - 0.28918

A) MXN/PEN 2.61127 - 2.62867

B) MXN/PEN 2.62890 - 2.64630

C) MXN/PEN 0.03042 - 0.03296

D) MXN/PEN 0.38300 - 0.38554
 
1) convert USD/MXN direct quote to an indirect quote

Bid: 1 / 0.11001 = 9.09008
Ask: 1 / 0.11036 = 9.06125

Now these are expressed as MXN/USD

2) determine MXN/PEN bid cross-rate

MXN/PEN = MXN/USD * USD/PEN
= 9.09008 * 0.28818
= 2.61958

3) determine the ask cross-rate

MXN/PEN = MXN/USD * USD/PEN
= 9.06125 * 0.28918
= 2.62033

Looks like Answer A, but not exactly. Did I miss something here?
 
Your answer: B was incorrect. The correct answer was A) MXN/PEN 2.61127 - 2.62867

We recommend using the following "Bid-Ask Matrix Method" to calculate the bid and ask quotes:

Step 1: Put the bid-ask quotes into a matrix. Use direct quotes in the common currency.

Currency
Bid
Ask

MXN
0.11001
0.11036

PEN
0.28818
0.28918


Step 2: "Divide Out" the diagonals and take the reciprocal. Remember that the quotes are direct quotes for a USD investor.

(Remember to put MXN in the numerator - because MXN is in the numerator of the quote we are asked to calculate.)

MXNBid / PENAsk = 0.11001 USD/MXN / 0.28918 USD/PEN = 0.38042 PEN/MXN,

1 / 0.38042 PEN/MXN = 2.62867 MXN/PEN

MXNAsk / PENBid = 0.11036 USD/MXN / 0.28818 USD/PEN = 0.38296 MXN/PEN,

1 / 0.38296 PEN/MXN = 2.61127 MXN/PEN

Step 3: Quote : The MXN/PEN Bid-Ask is:

(Note: The lower number from Step 2 is the bid, the higher number is the ask.)

MXN/PEN 2.61127 to 2.62867
 
I don't understand why we cross multiply the bid and the asks

I had the same calculation as yours..

1/0.11001 = 9.09008 = MXN/$
$/PEN = 0.28818
Therefore --> MXN/PEN = 9.09008 X 0.28818 = 2.61958 = Bid

Simmilarly ASK =

1/0.11036 = MXN/$ = 9.06125
$/PEN = 0.28918
--> MXN/PEN = 9.06125 X 0.28918 = 2.62033

MXN/PEN--> Bid/ASK --> 2.61958 - 2.62033



Edited 1 time(s). Last edit at Sunday, August 12, 2007 at 05:47PM by delhirocks.
 
hiredguns1 Wrote:
-------------------------------------------------------
> 1) convert USD/MXN direct quote to an indirect
> quote
>
> Bid: 1 / 0.11001 = 9.09008
> Ask: 1 / 0.11036 = 9.06125
>

This is incorrect. And that's why you are getting the wrong answer. Doesn't bid being greater than the ask ring any bell ?
 
sorry to burst your bubble...but ask is always greater then bid

Why would a dealer want to buy FC at a higher price and sell at a lower price.


fsa-sucker Wrote:
-------------------------------------------------------
> hiredguns1 Wrote:
> --------------------------------------------------
> -----
> > 1) convert USD/MXN direct quote to an indirect
> > quote
> >
> > Bid: 1 / 0.11001 = 9.09008
> > Ask: 1 / 0.11036 = 9.06125
> >
>
> This is incorrect. And that's why you are getting
> the wrong answer. Doesn't bid being greater than
> the ask ring any bell ?
 
Well, it certainly should have. I've since found the correct methodology in Schweser's 2006 LI notes, Book 2 p.169, but why don't you be a sport and actually answer the question?

fsa-sucker Wrote:
-------------------------------------------------------
> hiredguns1 Wrote:
> --------------------------------------------------
> -----
> > 1) convert USD/MXN direct quote to an indirect
> > quote
> >
> > Bid: 1 / 0.11001 = 9.09008
> > Ask: 1 / 0.11036 = 9.06125
> >
>
> This is incorrect. And that's why you are getting
> the wrong answer. Doesn't bid being greater than
> the ask ring any bell ?
 
You have the bid and ask calculations interchanged.

The correct bid and ask values are

Bid = 1 / 0.11036 = 9.06125
Ask = 1 / 0.11001 = 9.09008

Plug these values into the rest of your calculations and you should have your answers.
 
You must log in or register to reply here.
Back
Top