Cross rates in forex market
Foreign Exchange Rates/Currencies - Key Cross Rates - Currency Converter
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Executing a foreign exchange transaction between the major international currencies is usually straightforward, as most banks will be trading and making a price between all the major currencies.
However, for less common currencies, many banks will not run books and therefore rates are not always quoted or easily available.
Cross Rates - Bloomberg
In order to establish the appropriate rate of exchange, the cross-rate between the two currencies has to be calculated. This works by translating the first currency into a common currency often the US Dollar and then translating the common currency into the second currency. This then determines the cross-rate between the two currencies.
In most cases, the base currency will be US dollars for both currencies and this will enable the cross-rate to be calculated quite easily. Finally we must remember that for all foreign exchange trades, the dealer can quote two numbers — the first is the bid rate the rate at which the trader will buy the currency , the second is the offer rate the rate at which the trader will sell the currency.
Cross Rates and Cross Currency Pairs
The dealer always wants more currency if selling units of the base currency than will be given away if currency is being provided for units of the base currency. The difference is the margin and is one of the sources of profit to the dealer.
To calculate the cross-rate between the Canadian Dollar CAD and the South African Rand ZAR , using the US Dollar as the common currency.
Let us assume that the Canadian Dollar and Rand are quoted as:. The first number is the rate at which the bank sells the currency being quoted against the US dollar and the second is the rate at which the bank buys the currency being quoted against the US dollar. So the cross rates can be calculated as:. To calculate the cross-rate between Sterling GBP and the Mexican Peso MXN , using the US Dollar USD as the common currency.
CFA Level I- 2015 -Economics : Currency Exchange RatesLet us assume that rates are quoted as follows:. May Be the first to comment Related tags: Remember me Forgotten your password?
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