A: What are the bid-ask spreads for each currency India and Brazil (include calculations)
b: What are the implications of the presence or absence of a forward exchange market?© BrainMass Inc. brainmass.com October 9, 2019, 6:31 pm ad1c9bdddf
The foreign exchange market is an over the counter market where foreign currencies are bought and sold against one another. There are two types of exchange rate quotations- direct and indirect. In India, the central bank RBI has appointed banks to act as market makers. They are called authorized dealers. A market maker is a person who quotes two process for a commodity - BID rate and ASK rate. For example, bank A quote,
Rs. /R = 57.90/58.20.
The above quote implies that bank A is bidding for Real at Rs. 57.90 and is asking Rs. 58.20 to sell one real. The difference, I.e. Rs. 0.30 per Real is known as the bid- ask spread. It goes towards:
1. Covering the expenses of the bank in the dealing business.
2. Risk premium.
3. Normal profit.
Suppose there is bank B in Brazil, the equivalent quote is calculated as under:
R/ Rs. = (1/58.20)/ (1/57.90) = 0.01718/ 0.01727
The above quote implies that bank B is bidding ...
The bid-ask spreads for each currency in India and Brazil are found. The implications presence or absence in the forward exchage market is discussed. 580 words with calculations