The Bid-Ask Spread: Quoted \"Big Fig\" versus \"Small Fig\" A dealer pricing pou

Question

The Bid-Ask Spread: Quoted "Big Fig" versus "Small Fig" A dealer pricing pounds in terms of dollars would likely quote these prices as 50-55 Anyone trading $10m knows the "big figure." USD Bank Quotations Terms: Bid American Terms: Ask European Terms: Bid European Terms: Ask American Euro $1.1250/E $1.1255/e 0.8885/$ 0.8889/$ Euro American Terms Bid 1.12 is "big fig" Euro American Terms Bid 50 is "small fig" Euro American Terms Ask 1.12 is "big fig'" Euro American Terms Ask 55 is "small fig" 5-13

Explanation / Answer

The Bid/ask spread is given by the ask quote percentage

So, For American terms,Bid/Ask spread={(Ask Rate-Bid Rate)/Ask Rate }

Bid/Ask Spread={(1.1255-1.1250)/1.1255)}

=0.0005/1.1255= 0.12

For European terms,Bid/Ask spread={(Ask Rate-Bid Rate)/Ask Rate }

Bid/Ask Spread={(0.8889-0.08885)/0.8889)}

=0.0004/0.8889=0.00045

The "1.12" is known as big figure and hence it is assumed that all traders known it

While the other two digits as known small figure.

The sufficient response is "50 to 55" to quote

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