Definition
Cross Rate
A cross rate is the exchange rate between two currencies derived through a common third currency (usually the US dollar) rather than quoted directly.
Most currencies are quoted against the dollar, so a pair like EURINR or GBPJPY is computed as a cross. EURINR = EURUSD x USDINR; if the euro buys 1.08 dollars and a dollar buys 83 rupees, the euro buys about 89.6 rupees.
For Indian traders, this means EURINR and GBPINR futures inherit volatility from two sources: the foreign currency's move against the dollar and the rupee's own move. Arbitrageurs keep cross rates aligned with the implied product of the underlying dollar pairs.
Related terms
- Triangular ArbitrageTriangular arbitrage exploits a pricing mismatch among three currencies, converting through all three to lock in a risk-free profit when the cross rate diverges from the implied rate.
- USDINRUSDINR is the exchange rate of the US dollar against the Indian rupee, the most-watched currency pair in India and a key barometer of capital flows and import costs.
- EURINREURINR is the exchange rate of the euro against the Indian rupee, a cross pair derived from EURUSD and USDINR rather than traded directly in the interbank dollar market.
- Currency Pair NotationCurrency pairs are written as a six-letter code such as USDINR or EURINR, naming the base currency first and the quote currency second, with the price showing how many units of the quote currency buy one unit of the base.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.