Cross exchange rate bid-ask spread
A cross rate is the currency exchange rate between two currencies when neither are official currencies of the country in which the exchange rate quote is given. Foreign exchange traders use the term to refer to currency quotes that do not involve the U.
In the pure sense of the definition, it is considered a cross rate if it is referenced by a speaker or writer who is not in Japan or one of the countries that uses the euro. While the pure definition of a cross rate requires it be referenced in a place where neither currency is used, the term is primarily used to reference a trade or quote that does not include the U.
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Any two currencies can be quoted against each other, but the most actively traded pairs are EURCHF, which is the euro versus the Swiss franc; EURGBP, the euro versus the British pound; EURJPY, the euro versus the Japanese yen; and GBPJPY, the British pound versus the Japanese yen. The euro is the base currency for the quote if it is included in the pair.
If the British pound is included but the euro is not, the pound is the base. These currencies are actively traded in the interbank spot foreign exchange market, and to some extent in the forward and options markets. Crosses traded in the interbank market but are far less active include CHFJPY, the Swiss franc versus the Japanese yen; and GBPCHF, the British pound versus the Swiss franc.
Cross Rate Currency Calculation
Crosses involving the Japanese yen are usually quoted as the number of yen versus the other currency, regardless of the other currency. Any two currencies can be quoted against each other, regardless of whether the pair is traded.
Cross quotes in currencies that are similar in value and quoting convention must be defined carefully to prevent mistakes. For example, the New Zealand dollar was quoted at 1.
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Both are quoted against the U. It is market convention that uses the stronger AUD, which is also the larger economy, as the base. The two currencies trade near parity to each other, creating the potential for a misquote.
The major crosses have bid-offer spreads slightly wider than the major dollar-based pairs, but they are quoted actively in the interbank market. Spreads in the minor crosses are generally much wider; some are not quoted directly at all, so a quote must be constructed from the bids and offers in the component currencies versus the U.
Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.
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Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. What is a 'Cross Rate' A cross rate is the currency exchange rate between two currencies when neither are official currencies of the country in which the exchange rate quote is given.
Major Crosses Any two currencies can be quoted against each other, but the most actively traded pairs are EURCHF, which is the euro versus the Swiss franc; EURGBP, the euro versus the British pound; EURJPY, the euro versus the Japanese yen; and GBPJPY, the British pound versus the Japanese yen. Minor Crosses Crosses traded in the interbank market but are far less active include CHFJPY, the Swiss franc versus the Japanese yen; and GBPCHF, the British pound versus the Swiss franc.
Bid-Offer Spread The major crosses have bid-offer spreads slightly wider than the major dollar-based pairs, but they are quoted actively in the interbank market.
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