What Is a Cross Rate?
Posted On July 29, 2022
A cross rate is a foreign currency exchange transaction between two currencies that are both valued against a third currency. In the foreign currency exchange markets, the U.S. dollar is the currency that is usually used to establish the values of the pair being exchanged.
As the base currency, the U.S. dollar always has a value of one.
When a cross-currency pair is traded, two transactions are actually involved. The trader first trades one currency for its equivalent in U.S. dollars. The U.S. dollars are then exchanged for another currency.
- A cross rate by definition may be any exchange of any two currencies that are not the official currency of the country in which the quote is published.
- In practice, any currency exchange in which neither of the currencies is the U.S. dollar is considered a cross rate.
- One of the most common cross currency pairs is the euro and the Japanese yen.