1. What is Cross Rate?

The cross rate is an exchange rate between two currencies calculated by using the rates of both currencies against a common third currency (usually USD). It's used when there is no direct exchange rate available between two currencies.

2. How Does the Calculator Work?

The calculator uses the cross rate formula:

Where:

• \( Rate1 \) — Exchange rate of Currency 1 against the base currency
• \( Rate2 \) — Exchange rate of Currency 2 against the same base currency
• The result is the exchange rate between Currency 1 and Currency 2

Explanation: The formula effectively eliminates the base currency by dividing the two rates, giving you a direct rate between the two non-base currencies.

3. Importance of Cross Rate Calculation

Details: Cross rates are essential in foreign exchange markets, international trade, and financial analysis when direct exchange rates aren't available or when comparing currency values.

4. Using the Calculator

Tips: Enter both exchange rates against a common base currency (typically USD). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why use cross rates instead of direct rates?
A: Cross rates are used when direct exchange rates aren't quoted in the market or when you need to verify the consistency of currency pairs.

Q2: What is the most common base currency?
A: The US Dollar (USD) is most commonly used as the base currency for cross rate calculations.

Q3: How accurate are cross rates?
A: Cross rates should theoretically match direct rates, but small discrepancies may exist due to market inefficiencies or different liquidity in currency pairs.

Q4: Can I calculate cross rates with more than two currencies?
A: Yes, you can chain multiple cross rates together to calculate rates between any number of currencies.

Q5: Are cross rates used in arbitrage?
A: Yes, traders use cross rates to identify triangular arbitrage opportunities when exchange rates don't align perfectly.