Question1 You are assisting a senior dealer on the FX desk at Morgan Stanley London. The team is monitoring three major currency pairs for potential short-term arbitrage opportunities. The interbank screen shows the following spot quotations: [table]
Currency Pair | Bid | Offer GBP/USD | 1.3335 | 1.3350 USD/CHF | 0.9205 | 0.9215
[/table] Based on the information above, what is the implied GBP/CHF two-way quotation? 1.2302 - 1.2275 1.2275 - 1.2302 1.2250 - 1.2270 1.2305 - 1.2280 1.2280 - 1.2305 ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

Let me restate the situation and the options clearly before diving into each choice.
Question: You’re given two spot quotes: GBP/USD bid/offer = 1.3335 / 1.3350, and USD/CHF bid/offer = 0.9205 / 0.9215. You’re asked for the implied GBP/CHF two-way quotation.
Answer choices present the two-way quotes in the form: [X - Y], where X is the bid and Y is the offer for GBP/CHF.
Now, examine how to derive GBP/CHF from the two given crosses.
First, compute the cross rate for the bid side: GBP/USD bid times USD/CHF bid.
- GBP/USD bid = 1.3335
- USD/CHF bid = 0.9205
Cross-bid ≈ 1.3335 × 0.9205 = 1.2267 (rounded, this is the bid for GBP/CHF under the assumption you are selling GBP to buy CHF).
Next, compute the cross rate for the offer side: GBP/USD offer times USD/CHF offer.
- GBP/USD offer = 1.3350
- USD/CHF offer = 0.9215
Cross-offer ≈ 1.3350 × 0.9215 = 1.2302 (rounded, this is the offer for GBP/CHF under the assumption you are buying GBP with CHF or selling CHF to buy GBP).
With these two products, the implied two-way GBP/CHF quotation is approximately 1.2267 – 1.2302.
Now evaluate each answer option:
Option 1: '1.2302 - 1.2275' would place the bid above the offer and reverse the usual convention (the bid should be the lower number). This is inconsistent with standard quoting where bid ≤ offer. Additionally, the values themselves differ from our cross calculations (1.2302 is the cross-offer, not the bid).
Option 2: '1.2275 - 1.2302' matches the expected structure where the lower number is the bid and the higher number is the offer. The cross calculations yield a bid around 1.226–1.227 and an offer around 1.230–1.231, which aligns with 1.2275 (rounded) as the bid and 1.2302 as the offer.
Option 3: '1.2250 - 1.2270' places both numbers lower than our computed cross rates; while it’s not impossible due to minor market moves, it does not align with the direct product of the given quotes.
Option 4: '1.2305 - 1.2280' again presents the bid higher than the offer, which is incorrect for a standard two-way quote where bid ≤ offer.
Option 5: '1.2280 - 1.2305' has the bid higher than the calculated cross-bid around 1.226–1.227, which is inconsistent with the computed numbers and the implied cross-rate multiplication.
In summary, only Option 2 presents the correctly ordered two-way cross-quote and matches the approximate results from multiplying the respective bid/offer pairs. The other options either violate the bid ≤ offer convention or mismatch the calculated cross-rate values.

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