In following question,why ask rate(42.85) and bid rate ( 7.5880) is taken simultaneously??
You sold Hong Kong Dollar 1,00,00,000 value spot to your customer at ` 5.70 & covered
yourself in London market on the same day, when the exchange rates were
US$ 1 = H.K.$ 7.5880/ 7.5920
Local inter bank market rates for US$ were
Spot US$ 1 = ` 42.70/ 42.85
Calculate cover rate and ascertain the profit or loss in the transaction. Ignore brokerage.
Answer
The bank (Dealer) covers itself by buying from the market at market selling rate.
Rupee – Dollar selling rate = ` 42.85
Dollar – Hong Kong Dollar = HK $ 7.5880
Rupee – Hong Kong cross rate = ` 42.85 / 7.5880
= ` 5.6471
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