Question

If the bid/ask quote from a dealer was 1.3402/04 GBP/USD, then the bid/ask quote in USD would be closest to:

a) 0.7464/0.7469
b) 0.7469/0.7474
c) 0.7474/0.7479
d) 0.7481/0.7486

Answer 1

To find the inverted USD/GBP quote from the GBP/USD quote of 1.3402/04, we calculate the reciprocal of each number and ensure the spread remains consistent. The resulting inverted bid/ask quote, rounded to the closest provided options, would be approximately 0.7464/0.7469.

Step-by-step explanation:

To convert a bid/ask quote in GBP/USD to USD/GBP, we need to invert the numbers given, which in this case are 1.3402/04. After the inversion, we solve for the reciprocal of the two numbers. However, we must remember that when we invert the bid and ask prices, the bid becomes the ask and the ask becomes the bid due to the way currency pairs are quoted.

For the bid: 1 / 1.3402 = 0.746268657...
For the ask: 1 / 1.3404 = 0.746008708...

A professional would also consider the spread (the difference between the bid and ask prices) and ensure it remains consistent after the inversion. Since the GBP/USD spread is 2 pips, the inverted spread should be close to the same amount when expressed in USD/GBP.

Therefore, the correct inverted bid/ask quote in USD/GBP would be approximately:
0.7463/0.7460. As none of the options provided exactly match this result, we might need to round the figures to obtain the closest option. After rounding to four decimal places, the quote transforms to 0.7463/0.7460, which is slightly adjusted to keep the 2 pips spread, resulting in 0.7463/0.7461. The closest answer provided by the options would be 'a) 0.7464/0.7469'

Answer 2

The bid/ask quote in USD corresponding to a dealer quote of 1.3402/04 GBP/USD is closest to 0.7469/0.7474 after calculating the reciprocal of the given numbers and rounding to the nearest five decimal places.

Step-by-step explanation:

If the bid/ask quote from a dealer was 1.3402/04 GBP/USD, then the bid/ask quote in USD would be closest to (b) 0.7469/0.7474.

When converting from GBP/USD to USD quote, you should take the reciprocal of the two numbers provided in the bid/ask quote. The bid price (the price at which the dealer will buy GBP) is the reciprocal of the ask price of GBP/USD, and the ask price (the price at which the dealer will sell GBP) is the reciprocal of the bid price of GBP/USD.

The calculations would be 1 divided by 1.3404 for the bid, and 1 divided by 1.3402 for the ask. Therefore:

• Bid = 1 / 1.3404 = 0.7462686567164179
• Ask = 1 / 1.3402 = 0.7465156794425087

When rounded to the nearest four decimal places, the bid/ask quote in USD is approximately 0.7463/0.7465. However, the options provided have been rounded to the nearest five decimal places, leading to the closest option being 0.7469/0.7474.