Looking for the answer to the question below related to Financial Management?
Inverse quote for USD / DKK 5.7935 – 5.8085 is _________________
|A. DKK /USD 0.1722-0.1726
B. USD / DKK 0.1722-0.1726
C. DKK / USD 0.1726-0.1722
D. USD / DKK 0.1726-0.1722
The Correct Answer Is:
- A. DKK /USD 0.1722-0.1726
The correct answer is A. DKK / USD 0.1722-0.1726 for the inverse quote of the original USD/DKK quote of 5.7935-5.8085. An inverse quote represents the exchange rate of one currency in terms of another. In this case, we are converting the original quote from USD/DKK to DKK/USD. Let’s explore why option A is the correct answer and why the other options are not accurate.
Why “A. DKK / USD 0.1722-0.1726” is the Correct Answer:
1. Inverse Quote Explanation:
When you want to convert the original quote of USD/DKK to its inverse, you are essentially expressing the value of the Danish Krone (DKK) in terms of US Dollars (USD). In an inverse quote, the base and quote currencies are switched.
So, if the original quote is 5.7935-5.8085, the inverse quote represents how many US Dollars (USD) you can get for one Danish Krone (DKK). Therefore, the correct answer should be in the format of DKK/USD.
2. Order of Rates:
In the original quote, you have the USD/DKK format, where the USD is the base currency and the DKK is the quote currency. In the inverse quote, the DKK should be the base currency, and the USD should be the quote currency. Option A follows this order correctly, with DKK as the base currency and USD as the quote currency.
3. Bid and Ask Rates:
The bid rate represents the lower value at which you can sell the base currency (DKK) and buy the quote currency (USD), while the ask rate represents the higher value at which you can buy the base currency (DKK) and sell the quote currency (USD).
In Option A, the bid rate is 0.1722, and the ask rate is 0.1726, which correctly represents the inverse of the original bid and ask rates in the USD/DKK quote.
Why the Other Options are Not Correct:
B. USD / DKK 0.1722-0.1726:
This option retains the original USD/DKK quote format and simply reverses the rates. However, it does not represent the inverse quote in terms of DKK/USD, which is what the question is asking for.
C. DKK / USD 0.1726-0.1722:
While this option switches the order of rates, it incorrectly presents the bid rate (0.1726) as higher than the ask rate (0.1722), which is contrary to the normal bid-ask spread. The bid rate should be lower than the ask rate in a standard quote, and this option reverses that order.
D. USD / DKK 0.1726-0.1722:
Similar to option B, this option retains the original USD/DKK quote format but reverses the rates. Again, it does not represent the inverse quote in terms of DKK/USD, as requested in the question.
In summary, option A. DKK / USD 0.1722-0.1726 is the correct answer for the inverse quote of the original USD/DKK quote of 5.7935-5.8085.
It follows the proper format, order, and bid-ask rate relationship for an inverse quote, which expresses the value of the Danish Krone (DKK) in terms of US Dollars (USD). Understanding how to convert currency quotes and work with inverse quotes is essential in foreign exchange and financial markets.
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