A cross rate is the currency exchange rate expressed by a currency pair in which none of the currencies involved is the official currency of the country in which this quotation is made. For example, if the currency exchange rate between a Japanese yen and a British pound is quoted in a United States newspaper, this would be called a cross rate since none of the currencies of this pair is the US dollar. However, if the same rate is quoted in a Japanese newspaper, it would not be a cross rate, since Japan’s official currency is involved in this pair. At a more general level, the exchange rates expressed by any currency pair that does not involve the US dollar are called cross rates. Thus, this broader definition implies that the exchange rate of the currency pair GBP/JPY would be a cross rate, regardless of the country in which this quotation is being made. Required: The Bank of Zambia has recently employed you as a currency specialist to help guide them on import and export policies that they are about to formulate. A. Let’s say the exchange rate for the South African Rand–Russian Ruble is 1.4876 and the exchange rate for the Chinese Yuan–South African Rand is 1.6459. Hence, calculate the Chinese Yuan–Russian Ruble using sample spot exchange rate and interpret the answer obtained B. A forex trader noticed the USD/EUR spot rate is 1.3960. Similarly, the CHF/USD spot rate is 0.9587. Calculate the spot CHF/EUR cross-rate and interpret your answer C. Suppose the Canadian dollar is currently traded at C$ 1.40/$. The Deutsche mark is traded at DM 1.39/$. Ignoring transaction costs: I. Determine the C$/DM exchange rate consistent with these direct quotation
A cross rate is the currency exchange rate expressed by a currency pair in which none of the currencies involved is the official currency of the country in which this quotation is made. For example, if the currency exchange rate between a Japanese yen and a British pound is quoted in a United States newspaper, this would be called a cross rate since none of the currencies of this pair is the US dollar. However, if the same rate is quoted in a Japanese newspaper, it would not be a cross rate, since Japan’s official currency is involved in this pair. At a more general level, the exchange rates expressed by any currency pair that does not involve the US dollar are called cross rates. Thus, this broader definition implies that the exchange rate of the currency pair GBP/JPY would be a cross rate, regardless of the country in which this quotation is being made.
Required:
The Bank of Zambia has recently employed you as a currency specialist to help guide them on import and export policies that they are about to formulate.
A. Let’s say the exchange rate for the South African Rand–Russian Ruble is 1.4876 and the exchange rate for the Chinese Yuan–South African Rand is 1.6459. Hence, calculate the Chinese Yuan–Russian Ruble using sample spot exchange rate and interpret the answer obtained
B. A forex trader noticed the USD/EUR spot rate is 1.3960. Similarly, the CHF/USD spot rate is 0.9587. Calculate the spot CHF/EUR cross-rate and interpret your answer
C. Suppose the Canadian dollar is currently traded at C$ 1.40/$. The Deutsche mark is traded at DM 1.39/$. Ignoring transaction costs:
I. Determine the C$/DM exchange rate consistent with these direct quotation
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