A currency trader observes that in the spot exchange ...
A currency trader observes that in the spot exchange market, 1 USD can be exchanged for 9 Mexican pesos or for 111.23 Japanese yen. What is the cross rate between the yen and the peso; that is, how many yen would you receive for every peso eschanged?
$1 = 9 Mexican pesos; $1 = 111.23 Japanese yen; Cross exchange rate, yen/peso = ?
Cross Rate: [pic] = [pic].
Note that an indirect quotation is given for Mexican; however, the cross rate formula requires a direct quotation. The indirect quotation is the reciprocal of the direct quotation. Since $1 = 9 pesos, then 1 peso = $0.1111.
Yen/Peso = 0.1111 dollars per peso ( 111.23 yen per dollar
= 12.358 yen per peso.
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