The meaning and calculation rule of cross exchange rate

Definition of cross exchange rate

After the basic exchange rate is worked out, the exchange rate of local currency against other foreign currencies can be calculated through the basic exchange rate. The exchange rate thus obtained is the cross exchange rate, also known as the arbitrage exchange rate.

In the international market, almost all currencies have exchange rates against the US dollar. The exchange rate of one non-US dollar currency to another non-US dollar currency often needs to be calculated through this exchange rate against the US dollar. This calculated exchange rate is called cross exchange rate. A remarkable feature of cross exchange rate is that one exchange rate involves the exchange rate between two non-US dollar currencies.

(Cross exchange rate) The exchange rate between two foreign currencies (usually not dollars). The dollar as a bridge to determine the cross exchange rate. For example, if an investor wants to sell Japanese yen to buy Swiss francs, he may sell Japanese yen to buy American dollars first, and then sell American dollars to buy Swiss francs. Therefore, although the transaction only involves the Japanese yen and the French franc, the exchange rate of the US dollar plays a benchmark role.

CrossRate means that after the base exchange rate is determined, the exchange rate of local currency against other foreign currencies can be calculated through the base exchange rate, so the obtained exchange rate is the cross exchange rate, also known as the arbitrage exchange rate. During the blind development of the futures market from 1992 to 1993, many Hong Kong foreign exchange brokers went to the mainland to conduct forex futures trading business without approval, and attracted a large number of domestic enterprises and individuals to participate. Because the vast majority of domestic participants do not understand the foreign exchange market and foreign exchange transactions, blind participation has led to large-scale and large-scale losses, including a large number of state-owned enterprises. 1In August, 1994, the CSRC and other four ministries jointly issued a document to completely ban forex futures trading (deposit). Since then, the management department has always held a negative attitude and severely cracked down on domestic foreign exchange margin trading.

Calculation method of cross exchange rate

There are two main methods to calculate the cross exchange rate: same-side cross division and multiplication (under different circumstances) 1, and cross division (both direct quotation and indirect quotation).

A: Both are direct quotation currencies.

Known: USD/JPY =120.00-120.10.

Deutsche Mark/Yen = 66.33-66.43

Find USD/DM

Then cross division

USD/DM =/KOOC-0/20.00/66.43-/KOOC-0/20./KOOC-0/66.33 =/KOOC-0/.8064-/KOOC-0/.8/KOOC-0/06.

Both are indirect quotation currencies.

Known: EUR/GBP = 0.6873-0.6883.

Euro/USD =1.10/0-1.1020

Find GBP/USD

Then cross division: GBP/USD =1.10/0.6883-1.1020/0.6873 =1.5995-/kloc.

Known: Euro/USD =1.1005-1.10/5.