Cross rate
An exchange rate between two currencies derived from each one's rate against a third, usually the US dollar. A quoted cross rate out of line with it offers triangular arbitrage.
Where you will meet it
Cross rate appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Work out cross-rates between currencies and explain what they mean
“A cross-rate is the exchange rate between two currencies derived through a third, usually the US dollar.”
- Given bid–offer quotes for three currencies, spot a triangular arbitrage and work out the profit it yields
“Triangular arbitrage exploits a dealer's cross rate that is out of line with the cross implied by two other pairs.”
See also
Arbitrage · Triangular arbitrage
Practise it
Practise cross rate until it is automatic: questions that explain every wrong option.
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