Lect09-International Financial Markets-VineyChptr15

9770 75 usdnzd13760 70 to determine the gbpnzd cross

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Unformatted text preview: ing??) = 1.4870 x 1.1497 = 1.7096 US\$1 = NZ\$ 1.7096 (or USD/NZ = 1.7096, more appropriate.) This derived single rate is called the US\$/NZ\$ cross rate The cross rate should = actual US\$ / NZ\$ spot rate. WHY ? (Arbitrage !) 21 • Calculating cross-rates (cont.) – Example 2: Crossing a direct and indirect FX quotation: GBP/USD1.9770-75 USD/NZD1.3760-70 To determine the GBP/NZD cross-rate: 1.9770 x 1.3760 = 2.7204 1.9775 x 1.3770 = 2.7230 GBP/NZD2.7204-30 15-22 • Calculating cross-rates (cont.) – Example 2: Crossing a direct and indirect FX quotation: Step by Step Approach: To get GBP/NZD Step 1: GBP/NZD = GBP/USD x USD/NZD (More straight forward, no need transposing here) Step 2: GBP/NZD bid = 1.9770 x 1.3760 = 2.7204 Step 3: GBP/NZD offer = 1.9775 x 1.3770 = 2.7230 Thus GBP/NZD = 2.7204 -- 30 15-23 • Calculating cross-rates (cont.) – Example 3: Crossing two direct FX quotations: USD/EUR0.6450–55 USD/JPY107.40–50 To determine the EUR/JPY cross-rate: 107.40/0.6455 = 166.38 10...
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