Currency Key Cross Rates:
Currency key cross rates, put into simpler words, is the exchange rate of two currencies between two countries that are indicated in the currency rates of a third country. For example, the exchange rate between Euros and Chinese Yuan is expressed in Japanese Yen. In other words, the cross rate is the exchange rate between any two currencies, where each of the currencies has an exchange rate quote against a common currency. Currency key cross rates are commonly used by foreign exchange traders to refer to currency quotes. This is used when the U.S. dollar is not involved, no matter what country in which the quote is provided.
The concept of currency key cross rates is any currency rate between any two currencies of two different countries. In this, the quote is published and does not typically involve the U.S. Dollar. For example, an exchange rate between the Euro and the Japanese Yen is contemplated to be a cross rate. This is because there is no U.S. dollar involved. This currency cross rate is referenced by someone who is not in Japan as well as in any of the countries using the Euro.
Importance
Are you wondering why the currency cross rate is important? A currency cross rate is very frequently and repeatedly used as a tool by investors for currency trading. For currency traders, the differentiation between the current value of one foreign currency to the value of some other foreign currency is contemplated as an extremely important measure for currency trades. The current rate of one currency in terms of another current currency also greatly helps to indicate the economic growth and health of a country. Which, in turn, proves the well being of the people living in that country.
The currency cross rate between currency A and currency C is to be derived from the currency exchange rate between the currency A and currency B and between currency B and currency C. The formula for the currency key cross rates using the example is:
[A/C] = [A/B] X [B/C]
Where [A/C] is the currency exchange rate between the countries A and C that is supposed to be expressed as the units of currency of country A per unit of the currency of the country C. Similarly, A/B and B/C are the currency exchange rates between the currency of country A and the currency of country B, and the currency of country B and the currency of country C, respectively.
Conclusion
The currency vendor supplies quotes for only the most liquid currencies such as the Euro, Pounds Sterling, the U.S. dollar, Swiss Franc, and many more. The exchange rate between any other currencies is typically calculated using the currency cross rate formula using the quotes for significant currencies. Cross rate trading has become significant and popular among investors. It allows them to impede against currency fluctuations risks. It is also extremely useful to make profits from interest rate plays and currency exchange rate fluctuations.
