EECS 1019 Lecture Notes - Lecture 38: United States Dollar, Mexican Peso, Pound Sterling
21 Jun 2018
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EECS 1019 Lecture 38 Notes
Introduction
Cross Exchange Rates
Most tables of exchange rate quotations express currencies relative to the dollar, but in
some instances, a firm will be concerned about the exchange rate between two non-
dollar currencies.
Cross exchange rates can be easily determined with the use of foreign exchange
quotations.
The relative value of any two non-dollar currencies is equal to the dollar value of one
currency divided by the dollar value of the other.
EXAMPLE
Suppose the peso is worth $.07 and the Canadian dollar is worth $.70.
Then the value of the peso in Canadian dollars (C$) is calculated as follows: Value of
peso in C$ ¼ Value of peso in $ Value of C$ in $ ¼ $:07 $:70 ¼ C$:10
Thus, a Mexican peso is worth C$.10.
The cross exchange rate can also be expressed as the number of pesos that equal a
single Canadian dollar.
This figure can be computed by taking the reciprocal: .70/.07 ¼ 10.0, which mean that
(at these exchange rates) a Canadian dollar is worth 10.0 pesos.
Source of Cross Exchange Rate Quotations
Cross exchange rates are provided for several major currencies on Yahoo!’s website
(finance.yahoo.com/currency-investing).
You can also view the recent trend of a particular cross exchange rate for periods such
as 1 day, 5 days, 1 month, 3 months, or 1 year.
The trend indicates the volatility of a cross exchange rate over a particular period.
Two non-dollar currencies may exhibit high volatility against the U.S. dollar
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EECS 1019 Full Course Notes
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