Hi guys,
This is my first post and i need some help from you all on calculating cross rates.
I know cross rates and know how to calculate some of the cross rates like
the Sfr/Can$ as it is referred from US$/Sfr and US$/Can$ with US$ as base currency for two rates.
the GBP/JPY as it is referred from GBP/US$ and US$/JPY with US$ as base currency for US$/JPY.
However, i am stuck when calculating EUR/GBP as both rates do not have US$ as base currency.
If EUR/USD bid and offer is at 1.4700 1.4710
and GBP/USD bid and offer is at 1.9580 1.9590
can any kind soul here provide me how to derive the cross rate of EUR/GBP bid and offer with the workings? Help appreciated
You would need the USD/GBP which is the reciprocal of the GBP/USD
so 1/1.9580 = 0.5107 x 1.47 = 0.7507
You can then work out the other.
Basically you need to go long EUR/USD (long EUR, Short USD)
& short GBP/USD (Short GBP, Long USD)
or vice versa.
Therefore cancelling out the USD.
To derive EUR/GBP from EUR/USD and GBP/USD you need to do nothing more than divide the former by the latter: EUR/USD divided by GBP/USD.
