14 Jan
Two Way Quotes | Forex | CA Final SFM
A Two way Quote indicates a set of two different rates of exchange known as Bid Rate and Ask Rate.
In a Two Way Quotes, the rate at which bank will buy the currency and the customer will sell the currency is known as Bid Rate.
The rate at which bank will sell the currency and the customer will buy the currency is known as Ask Rate.
Because the bank will buy currency at Bid Rate and sell the same currency at Ask Rate, it is obvious that Ask Rate will always be higher than Bid Rate.
The difference between Ask Rate and Bid Rate indicates the margin for the banker which is known as Spread.
Spread = Ask Rate – Bid Rate
Conversion of Direct Quote into Indirect Quote or Vice Versa
- Inverse of a Direct Quote will be an Indirect Quote.
- Similarly, inverse of an Indirect Quote will be a Direct Quote.
However, precautions should be taken while converting Two-Way Quote from Direct to Indirect or from Indirect to Direct.
In such situations consider the following:
- Inverse of Bid Rate of a Direct Quote will become Ask Rate in an Indirect Quote.
- Inverse of Ask Rate of a Direct Quote will become Bid Rate in an Indirect Quote.
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