Question8 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? 1.2275 - 1.2302 1.2250 - 1.2270 1.2280 - 1.2305 1.2305 - 1.2280 1.2302 - 1.2275 ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

We start by identifying the given spot quotations and how to construct the GBP/CHF cross.
- GBP/USD bid = 1.3335, GBP/USD offer = 1.3350
- USD/CHF bid = 0.9205, USD/CHF offer = 0.9215

To obtain the implied GBP/CHF cross, we multiply the corresponding legs:
- Cross bid (GBP/CHF bid) ≈ GBP/USD bid × USD/CHF bid = 1.3335 × 0.9205 ≈ 1.2271
- Cross offer (GBP/CHF offer) ≈ GBP/USD offer × USD/CHF offer = 1.3350 × 0.9215 ≈ 1.2302

Rounding conventions typically bring these figures to the same decimal precision as the quotes, resulting in a cross pair quotation around 1.2270–1.2302. Now we evaluate the provided options one by one.

Option 1: 1.2275 - 1.2302
- The calculated cross bid is approximately 1.2271, which is very close to 1.2275 when rounded to the standard four decimal places used here. The cross offer of about 1.2302 matches exactly the calculated cross offer. This option is consistent with the computation.

Option 2: 1.2250 - 1.2270
- This would place the bid down near 1.2250 and the offer near 1.2270, which is notably lower than the computed cross bid of ~1.2271. The bid side is too low relative to the data, making this unlikely.

Option 3: 1.2280 - 1.2305
- Here the bid is 1.2280, which is higher than the calculated 1.2271, and the offer is 1.2305, slightly higher than 1.2302. The bid being significantly above the calculated cross bid and the offer not aligning with the exact cross offer suggests this is inconsistent with the straightforward cross-multiplication.

Option 4: 1.2305 - 1.2280
- This presentation has the numbers reversed (higher bid than offer), which is not a valid two-way quotation format for a single cross pair. It also contradicts the natural ordering where bid < offer. This makes it incorrect on multiple counts.

Option 5: 1.2302 - 1.2275
- This also presents the cross in the wrong order (offer before bid) and reverses the expected quote direction. It contradicts the standard convention of listing bid first and offer second for the same cross pair.

In summary, the cross-quoting logic supports a two-way GBP/CHF quote around 1.2271 (bid) to 1.2302 (offer), with rounding to the nearest standard decimal place yielding 1.2275 - 1.2302 as a plausible representation. The remaining options fail to align with the computed cross or violate conventional quote formatting.

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