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 1.2305 - 1.2280 1.2250 - 1.2270 1.2275 - 1.2302 1.2280 - 1.2305 ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

We need to derive the implied GBP/CHF two-way quote from the given spot bids/offers for GBP/USD and USD/CHF.

Step 1: Identify the available quotes
- GBP/USD: Bid = 1.3335, Offer = 1.3350
- USD/CHF: Bid = 0.9205, Offer = 0.9215

Step 2: Compute the cross-rate for GBPCHF in the two directions
- To obtain CHF by selling GBP (the GBP/USD bid path): sell GBP for USD at GBP/USD bid, then sell USD for CHF at USD/CHF bid.
  CHF per GBP (cross bid) = 1.3335 (USD per GBP) × 0.9205 (CHF per USD) ≈ 1.2265 CHF per GBP.
  This represents the price you would receive in CHF if you are selling GBP (the bid side for GBPCHF).

- To obtain CHF by buying GBP (the GBPCHF offer path): buy GBP with USD at GBP/USD offer, then buy CHF with USD at USD/CHF offer.
  CHF per GBP (cross offer) = 1.3350 (USD per GBP) × 0.9215 (CHF per USD) ≈ 1.2302 CHF per GBP.
  This represents the price you would pay in CHF if you are buying GBP (the offer side for GBPCHF).

Step 3: Compare with the answer options
- The cross-bid (CHF you receive per GBP when selling GBP) is about 1.2265, rounding to the nearest acceptable figure would be in the 1.226–1.227 range, not matching the options exactly.
- The cross-offer (CHF per GBP when buying GBP) is about 1.2302, which aligns with the upper end of the provided choices.

Step 4: Examine the given options and see which pair fits the implied cross-rate range
- 1.2302 - 1.2275: This would place the bid around 1.2275 and the offer around 1.2302, but the exact calculated bid is closer to 1.2265 rather than 1.2275, making this a slightly off fit.
- 1.2305 - 1.2280: This option gives a bid near 1.2280 and an offer near 1.2305, which brackets the calculated offer (≈1.2302) and is closer to the bid/offer spread that would arise from the input quotes when rounded to four decimals.
- 1.2250 - 1.2270: This would place the entire cross-rate well below the calculated bid, inconsistent with the data.
- 1.2275 - 1.2302: This has the offer at 1.2302 exactly, but the bid at 1.2275 is still a touch below the cross-bid calculation (~1.2265), which is plausible but not as tight as the 1.2280 bid in the chosen option.
- 1.2280 - 1.2305: This pair places the bid at 1.2280 and the offer at 1.2305, which most closely align with the cross calculations when rounded to the nearest 0.0005 and reflect the typical market rounding for a quoted cross-rate.

Step 5: Synthesize
- The two-way GBP/CHF quote derived from the provided GBP/USD and USD/CHF quotes is approximately 1.2265–1.2302. Among the given options, 1.2280 - 1.2305 best matches the cross-rate bounds when considering typical decimal rounding and quoting conventions in FX markets.

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