Currency exchange

USD/EUR = 1.165 means

I euro costs 1.165 USD

Bid - Ask means

Bid is buy, Ask is sell

USD/EUR bid ask spread is 1.1648/1.1652 means

The dealer is willing to buy 1.1648 USD for 1 EUR; Sell 1 EUR for 1.1652 USD

Bid and Ask, which one is always higher

Ask, buy low sell high

Central bank or dealer, whose spread is wider

dealer; think about it like retail profit vs wholesale profit

What is the logic behind triangular arbitrage

dealer’s bid can not be higher than central bank offer. Basically if dealer is paying more for what the whole sale market is selling, there is profit to be made

If I have base currency and I want price currency, should I use bid or ask price?

Bid price, because I am selling, I need the price for what is the dealer buying for

When foreign risk free rate is higher than domestic risk free rate, which currency will trade at forward premium

he currency with the higher risk-free rate will trade at a forward discount

What is the value of a forward contract at initiation

0

Does the forward contract value change immediately after initiation

yes, as interest rate and exchange rate changes

What is all in forward rate

sum of spot rate and the scaled forward points

The expected depreciation of for example USD (decline in JPY/USD) is equal

interest rate differential between US and Japan

UIRP, the expected change in exchange rates between two currencies equals

the interest rate differential between them

Does the UIRP assumes investors are willing to take exchange rate risk ?

The parity is "uncovered" because it does not involve a forward contract (unhedged). Instead, it assumes investors are willing to take on exchange rate risk

what does forward rate parity assume

Forward exchange rate is an unbiased predictor of the future spot exchange rate 

does forward rate parity assume forward rate is a perfect forecast of future exchange rate ?

no, it just assume it is an unbiased one

When forward rate parity hold, what other parity holds

Forward rate parity is based on both CIRP and UCIP, both must hold for forward rate parity to hold

What is the main idea of purchasing power parity

Law of one price, this is about inflation

What is the change in exchange rate under purchasing power parity

change in exchange rate = inflation difference of two country

The Ex-Ante Version of PPP: country with persistent high inflation will see depreciation or appreciation of their currency

depreciation duh

if i am executing carry trade, do I think UCIP hold?

no, i am betting against it, to earn arbitrage profit

carry trade perform well in low or high volatility environment

low

if both covered and uncovered interest rate parity hold, future spot rate is most likely forecasted by the

forward exchange rate