Explanation:
Answer: C. EUR/CNY is 7.1275/7.1293 (base/quote is bid/ask)
To compute the EUR/CNY cross rate, we chain EUR/USD with USD/CNY:
EUR/CNY Bid (market-maker buys CNY / sells EUR): We want the lowest CNY per EUR, so we use the bank's bid on EUR (sell EUR high) and bid on CNY (buy CNY low). The bid is obtained by selling EUR at EUR/USD bid and buying CNY at USD/CNY bid:
EUR/CNY Ask (market-maker sells CNY / buys EUR): We want the highest CNY per EUR, so we use the bank's ask on EUR (buy EUR high) and ask on CNY (sell CNY high):
Therefore, EUR/CNY = 7.1275 / 7.1293.
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P1.T3.500.1. Below are spot exchange rates (on August 13th, 2015) for two currency pairs: EUR/USD and USD/CNY; CNY is the currency code for the Chinese yuan, the basic unit of the renminbi.
| EUR/USD (EURUSD=X) - CCY | USD/CNY (USDCNY=X) - CCY |
|---|---|
| 1.1141 ↓ 0.0014 (0.12%) | 6.3968 ↑ 0.0078 (0.1200) |
| Prev Close: 1.1155 | Prev Close: 6.3891 |
| Open: 1.1160 | Open: 6.3884 |
| Bid: 1.1140 | Bid: 6.3981 |
| Ask: 1.1142 | Ask: 6.3986 |
Note: Both of the above are given in the base/quote format; e.g., in EUR/USD, the base currency is EUR, and the quote currency is USD, while in USD/CNY, the base currency is USD, and the quote currency is CNY.
What is the market-implied bid-ask on the EUR/CNY cross rate?
A
EUR/CNY is 0.1741/0.1741 (base/quote is bid/ask)
B
EUR/CNY is 5.7428/5.7434 (base/quote is bid/ask)
C
EUR/CNY is 7.1275/7.1293 (base/quote is bid/ask)
D
EUR/CNY is 8.6261/8.6270 (base/quote is bid/ask)
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