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In this short post, we’ll be looking at calculating currency cross rates. If you understand how to do these calculations, this will give you easy points in your CFA exam.
Let’s say you are given:
First, we need to set up the equation:
USD/CAD x CAD/GBP x GBP/EUR
= USD/
CADxCAD/GBPxGBP/EUR = USD/EUR
But we don’t have GBP/EUR, so we will have to divide the spot rate by 1.
GBP/EUR = 1/EUR/GPB = 1/0.78 = 1.28
Then, when we have every spot rate, we simply multiply everything:
USD/CAD x CAD/GBP x GBP/EUR
- USD/CAD = 1.28
- CAD/GBP = 0.54
- GBP/EUR = 1.28
USD/EUR = 1.28 x 0.54 x 1.28 = 0.88
If you would like to practice questions on this topic, consider our CFA Level 1 Question Bank.
Simon
simon.royal@analystprep.com
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