Mississippi Mud Pies, Inc. needs to buy 1,000,000 Swiss francs (CHF) to pay its Swiss chocolate supplier. Its banker quotes bid–ask rates of CHF1.3990–1.4000/USD. What will be the dollar cost of the CHF1,000,000?
What will be an ideal response?
The bank's bid rate is CHF1.3990/$. That is the price at which the bank is willing to buy $1 in return for CHF1.3990 . The bank sells dollars at its ask price CHF1.4000/$. Mississippi Mud Pies must sell dollars to the bank to buy CHF. Therefore Mississippi Mud Pies will receive the bank's bid rate of CHF1.3990/$. The dollar cost of CHF1,000,000 is consequently
CHF 1,000,000 / CHF1.399/$ = $714,796
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