3. Cross-Rate Calculations
d. calculate and interpret currency cross-rates;
What is a cross-rate?
A cross rate is the exchange rate between two countries computed from each country's exchange rate against a third country. For example, since most currencies are quoted against the U.S. dollar, sometimes we need to work out the cross rates for currencies other than the U.S. dollar.
Given Japanese Yen-to-USD bid-ask spread is
$:¥ = 119.05 - 121.95, and Euro-to-USD bid-ask spread is
$:€ = .7920 - .7932. What is the direct quote between Yen and the Euro in Japan?
(¥119.05 / $) / (€0.7932 / $) = Y150.0883/€, and
(¥121.95/$)/(€0.7920/$) = ¥153.9773/€