A Brazilian firm needs to purchase US$400,000. It gets a quote from Unibanco Bank with USDBRL (BRL/$)
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Question:
Since buying $1 costs the firm R$1.4037, company pays = 400,000*1.4037+200=BRL 561,680
With the mid-point quotation (bank buys & sells at the same price), firm pays = 400,000*[(1.4015+1.4037)/2]=561040
Transaction costs = 561,680 - 561,040 = BRL 640. In percentage: 640/561,040 = 0.114%
In this case, why do we figure out the transaction cost by using the ask price minus mid-point instead of ask price minus bid price?
Related Book For
Advanced Accounting
ISBN: 978-1259444951
13th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupni
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