In this workout, we're told a trader has paid $107,820,000 for 100 million Euros at a rate of 1.0782. The next day, the US unemployment rate is announced and it's higher than expected. Hence, the Euro appreciates against the US Dollar.

The bid-ask spread on Euro Dollar is now 1.0830 to 1.0837. What is the trader's profit or loss? Let's fill in the table underneath. The first thing we need is the US Dollars that were initially paid, and it's given right at the top of the text. It was the 107,820,000, and that happened yesterday. Now, because US Dollars were paid yesterday and our trader is now holding Euros, they want to go back again. They want to sell their Euros and then buy US Dollars. So sell Euros buy USD.

How many units of Euro do they have? They've got 100 million.

But now we need to work out which exchange rate to use. Well, we've got Euros and we're looking to buy US Dollars. Of the two exchange rates given here, which one would give me the best result? It would be the second one. I'd multiply the 100 million by the second one. The ask rate here, the 1.0837, that would give me loads of US Dollars, but that's not the way a bid-ask spread works. We always get the worst of the two and the counterparty, the other side of this trade, they make a profit on the margin in between.

So my base currency is the Euro, the first one in the quote, and the base currency is sold on the bid-ask. So the exchange rate that we're gonna be using is 1.0830, the worst of those two.

So now we need to work out the US Dollars received now to make a profit, we are really hoping it's going to be more than the 107,820,000 at the top there. So I take my 100 million Euros, I exchange it using the 1.0830. And how much money do we make? Great. It's 108 million, 300,000. We've made a profit. So now to calculate the profit, we take the difference between the Dollars received and the Dollars paid yesterday, and that profit comes to 480,000.