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.

### This is the 3 steps process to calculate currency cross rates:

- Set up the equation.
- Divide by 1 to switch the numerator and denominator of a spot rate you do not have.
- Multiply the spot rates.

### Example

Let’s say you are given:

- EUR/GBP = 0.78
- CAD/GBP = 0.54
- USD/CAD = 1.28

**What is the USD/EUR spot rate?**

First, we need to set up the equation:

USD/CAD x CAD/GBP x GBP/EUR

= USD/

~~CAD~~x~~CAD~~/~~GBP~~x~~GBP~~/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

Photo by Maria Imelda on Unsplash