Cross Rate Transactions
Cross-rate transactions occur when two currencies are equal which follows from their forex currency exchange rate according to a forex rate of the third currency. There are a couple of ways that cross rate transactions can be executed. First, some FDMs will actually offer these pairs. Second you can buy EUR/USD and then USD/JPY to affect a EUR/JPY cross.
Currency pairs that do not involve the USD are referred to as cross rates. Even though the USD is not represented in the quote, the USD rate is usually used in the quote calculation. An example of a cross rate is the EUR/GBP.
→ EXAMPLE: Assume that the following major exchange rates are known:
EUR/USD = 1.0060/65
GBP/USD = 1.5847/52
USD/JPY = 120.25/30
USD/CHF = 1.4554/59
→ CALCULATE GBP/CHF:
GBP/USD: Bid: 1.5847 Offer: 1.5852
USD/CHF: 1.4554 1.4559
GBP/USD X USD/CHF = 1.5847 X 1.4554 1.5852 X 1.4559
Source: www.forexrealm.com
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