hello, am I right, that the official exchange rate for euro and us-dollar is eurusd? why do there existst fx-pairs like: eurusd but gbpusd or jpyusd? if I want to price a eurusd fx-option with garman-kohlhagen lets say. what is the foreign and what the domestic interest rate? is the interest rate for euro the domestic one? thanks a lot.

Hi there,A bit confused by your question...The exchange rate between EUR and USD is indeed eurusd - at the time of writing this message the rate is 1.23.The other fx pairs you mention refer to the exchange rate between Sterling and Dollar (gbpusd, currently 1.78), and Yen and Dollar (jpyusd, currently 113.31).These are different "instruments", even if they are measured against the dollar. As an example, on a given day the dollar may weaken against the Pound, but strengthen against the Euro.Is this what you are asking? Hope it helps anyway.

hi,thanks for you answer.the exchange rate between eur and usd is eurusd, i.e. for one euro I get 1.23 us-dollar.but the exchange rate between usd and yen or usd and chf is different quoted, i.e. how much us-dollar do I get for one chf or for 100yen.why that difference?and my second question was concernin fx-option. I guess I have figuered it out. if i have a call on a euro against the us-dollar, i.e. a eurusd-call, then the underlying is the euro and therefore the interest rate for the euro is the foreign interste rate whereas the interest rate for the us-dollar is the domestic one.greetings.

The way fx rates are quoted is determined by market convention. Some fx pairs are indeed quoted inversely.For example, the conventional market quotation for the Swiss franc is the number of Swiss francs per US dollar. If this is 1.23, then for each $1 you get CHF1.23. To approximately figure out how much dollars you get per Swis franc, you just inverse the rate, i.e. 1/1.23=0.813.Of course, this is not entirely accurate in practice: one would need to take into account the market bid-offer spread, like in all other markets. So, in practice, you get fewer dollars per Swiss franc (0.79 instead of 0.81).

hi,if you average the bid- and ask- spot price, then the inverse rate is 'correct', isn't it?as you pointed out, is the there a spread in the market, does that mean that I shouldnt price an eurusd-call with an average spot-price? instead I should take the eurusd-bid rate?fx-option: do you know how many days there are until maturity for an one-month option?thanks

you have to start with the spot settlement date. then count the delivery date of 1 month in the futures market from settlement date. subtract any nr of delays and you will have the expiry date or days.

thanks amali,I buy an one month call-option on lets say on 28th of may 2004. and I have the spot price of that day, too.then you say I need the spot settlement date. is that 2nd of june (because of bank holidays)?then I go one month in the future, i.e. 2nd of july and subtract two days, i.e. 30th of may.is that correct?? why is the spot settlement date two days in the future of todays spot price?what does happen if i buy an option on thursday, is spot settlement then on monday?

Well the settlement date of the premium, unless specified otherwise, is monday. Why settlement days = 2 days after trade? That's just a market convention... it takes time for back office to check trades and confirm transfer of money... but T+2 doesn't apply to all currency pairs.In most cases the average of bid and offer can be considered as 'correct' exchange rate. But for illiquid ccy pairs you'll need to be careful as the spread can be wide and liquidity can be very thin during certain time of the day - say you are interested Eastern Europe ccy and but there's only an offer on screen because the local market is not opened yet. Will you assume the bid to be zero and take the average? Or just use the offer price, and if so what if the offer price is 5 big figures away from last traded price i.e you have no idea where a reasonable bid will be?

Quoteif I want to price a eurusd fx-option with garman-kohlhagen lets say. what is the foreign and what the domestic interest rate? is the interest rate for euro the domestic one? The usd rate is the domestic one and the euro rate is the foreign.In general, if the rate is quoted as 'abcdef', then 'def' is the domestic currency and 'abc' the foreign one. In other words 'abcdef' means the price of 'abc' in terms of the numeraire 'def'.