Chapter 17, Problem 2DQ

Summary Introduction

To prepare: Cross rate table.

Introduction:

Exchange Rate:

The exchange rate is the rate in which price of a country currency is measured in the term of other country’s currency. There are two methods of calculating the exchange rate direct and indirect.

• Direct exchange method: One unit price of the foreign currency is defined in term of domestic currency.
• Indirect method: One unit price of the domestic currency is defined in term of the foreign currency.

Cross rate:

Currency exchange rate of two countries which can be calculated with the help of third country’s currency is called cross rate.