FX Market: Cross-Rate Calculations
Which of the following pair of spot exchange rates _most likely_ represents the highest value for JPY relative to USD?
Very good.
The JPY/USD rate is the product of JPY/EUR and EUR/USD.
$$\displaystyle \frac{EUR}{USD}=\frac{1}{\frac{USD}{EUR}}=\frac{1}{1.1644}=0.8588$$
$$\displaystyle \frac{JPY}{EUR}\times \frac{EUR}{USD}=118.64\times 0.8588=101.8880$$
Therefore, USD 1 buys JPY 101.8880, or JPY 1 worth USD 0.0098.
Using a similar calculation, if EUR/USD = 0.9138 and EUR/JPY=0.0081, then JPY 1 is worth USD 0.0089.
Also, using a similar calculation, if EUR/USD = 0.8826 and JPY/EUR = 117.524, then JPY 1 is worth USD 0.0096.
Incorrect.
This answer may have resulted from a failure to use EUR as the base currency in converting JPY into USD.
Incorrect.
This answer may have resulted from using the wrong base currency in both of the quotes needed to calculate the correct cross-rate.
USD/EUR = 1.1644 and JPY/EUR = 118.64
EUR/USD = 0.9138 and
EUR/JPY = 0.0081
EUR/USD = 0.8826 and
JPY/EUR = 117.524
