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Trading

A CD/$ bank trader is presently quoting a small figure bid-ask of 35-40, while rest of the market is trading at the CD1.3436-CD1.3441.  Specify what all is implied about trader’s beliefs by his prices?

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Trader should think that Canadian dollar is declining against U.S. dollar and thus he is trying in order to decrease his inventory of Canadian dollars through discouraging purchases of the CD by willing to buy $ only at CD1.3435/$1.00 and also providing to sell from inventory at the price which is slightly lower in comparison to the market price of CD1.3440/$1.00.

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