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Hi, I did exactly as you said in my answer:
https://opentuition.com/topic/cross-spot-rate/
You said: “No, the answer is correct.
If we want to know the cost of 100 JPY in ARD, then first we would pay for the 100 JPY in Euros and it would cost 100/129.2 Euros.
The cost of buying 1 Euro is 95.6 ARD, and therefore to end up having 100 JPY will cost 100/129.2 x 95.6
Therefore the cross rate for buying JPY is 95.6/129.2 ARD.”
—> However, in the answer, they use the other rates 92.7/132.4.
I used the logic that the bank always win. Basically what I do is when I have to divide I divide by the highest number to be worse off, when I have to multiply I multiply by the smallest number to be worse off. And to do this I used the spread you said were correct: 95.6/129.2.
Then why does the answer use the other one?thanks to clarify
Also, when using the other spread, the ARD becomes the “base” and therefore to use PPP I need to do 1.015/1.09 or it stays as 1.09/1.015?
Very confusing this whole cross exchange rate thing…
The examiners answer to this question is confusing because he should have used different cross rates for the receipts as against the payment.
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