Bid/Offer Rate confused — OpenTuition Forums

GGraham5y ago

Hi John In relation to Bid/Offer, Can you clarify which is which. Am I correct in saying that Bid is to buy and offer is to sell? I've seen on questions: Bid Offer 57.31 - 57.52 (random practice question from the kit) Offer Bid 58.335 - 58.345 {Plam Co. March 16 (modified)} I was also under the impression that the first rate (57.31 or 58.335) was the buying rate and (57.52 or 58.345) was the selling rate and the buying rate is always lower than the selling rate but the above information from Kaplan practice kit contradicts that, as the in the second example above the offer rate is first and is also lower than the bid rate Sorry, I hope that makes sense - really confused now Thanks Graham

GGraham5y ago#1

Actually, are they different depending on whether the company is making a payment or receiving money? - hedging the risk For example, the bid/offer rate above, the company was receiving money and the offer/bid rate combination was when the company had to make a payment in X months time. Does that still mean the first rate quoted is always the buying rate and the second rate quoted is the selling rate regardless of hedging against a payment being made or a receipt being received? Maybe I've just confused myself altogether now :-) Thanks Graham

John MoffatTutor5y ago#2

The terms bid and offer are rarely if ever used in Paper FM (and aren't needed anyway). It depends which way the exchange rate is quoted. If is a $/€ rate (for example) the first first (the lowest) rate is used if the company is buying $'s and the second (highest) rate is used if the company is selling $'s. I do explain this (and the logic) with examples in the first of my free lectures on the management of foreign exchange risk.

GGraham5y ago#3

Thanks for the clarity John

John MoffatTutor5y ago#4

You are welcome :-)

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