Cross rates are a phenomenon that belongs to the category of currency exchange operations, which has gained popularity on Forex. Interestingly, this phenomenon involves operations with currency pairs in which the dollar does not appear as the base or priority currency.
general description
Since the majority of currency transactions in the Forex market are made with the dollar, cross-rates are the prerogative of traders only, who have very impressive trading experience, a complex of knowledge of the micro and macroeconomic situation in the country whose currency is involved in the auction. But quite often, the dollar also takes part in this type of trading.
Among the most popular types of cross-courses, it is customary to distinguish the following:
- yen and Swiss franc ;
- pound sterling and Canadian dollar.
For these pairs, the principle of reverse and direct quotation of currencies does not apply.
In general, there are three main currency quotes on the Forex market:
- The cross quote described here.
- Direct is a unit of existing foreign currency displayed in dollar terms. Usually it is written like this: JPY / USD (in this pair, the foreign currency of interest is the first).
- Reverse - the unit of the American dollar, expressed in the currency of a foreign state. It is prescribed similarly with a direct quote, but in such a pair the dollar is in the first place: USD \ EUR.
Cross rate dollar and euro. Currency Calculations
Recently, the dollar and the euro have become regular participants in cross-rates for most world currencies, so it is difficult to underestimate the importance of their calculations. In this case, cross-rates are an opportunity to conduct trading, and it is calculated in three ways if it comes to the dollar. They should be considered:
- There is an importer with a partner from Hong Kong. The dealer needs to calculate operations based on the quotation of both the Hong Kong dollar and the ruble. Such operations are not quoted on the market, so a dollar cross rate can serve as an exit here. And here the scheme is quite simple: rubles are bought, they are exchanged for dollars, and then US dollars are exchanged for Hong Kong. And here a couple of courses are used right away.
- Indirect way. In this case, the dollar serves as a cross-currency for one of a pair of currencies, for example, from a pair of ruble and pound sterling, it refers to the second. The operation is performed by multiplying the dollar rates of these two currencies by each other.
- The specific method assumes that the dollar refers to both currencies from a pair, so for the calculation it is necessary to divide one into the second.
Settlements for Euro
There is a resemblance to dollar settlements, but with some differences. However, there is a simplified scheme, most often used by dealers. It includes the following:
- Detection of averages for the sale and purchase of each currency against the euro.
- Through calculations, the current average cross rate of the euro is determined.
- The average euro value is extended in both opposite directions to fix the value of the spread. And this allows you to get the value of the course and the purchase and sale according to the cross-rate of the euro.
Value
Forming a particular type of tool, such as cross-courses, is not a spontaneous decision. In fact, operations in which the position of the dollar is not a priority have a whole range of advantages in use. To understand this, you need to slightly ignore the principles of the Forex currency exchange as an international structure, and consider the benefits of this tool for individual financial institutions and corporations engaged in trading outside their state.
For successful economic analysis, it is very important to know about the state of the oil, gas and industrial raw materials market. The priority currency in conducting international cooperation is the American dollar. And this is understandable, because, despite the current situation, the United States is considered the most economically developed country . But the dollar is characterized by periodic fluctuations. That is why it is most correct to conduct operations in which the currencies of other states participate, in which the economy is much more stable at the time of trading. That is why the cross-rate of the ruble is gradually becoming more and more popular.
Certain nuances of use
For the correct choice of this instrument, it is required to study the economic situation of the country, and for this, a system of currency indices is traditionally used. This method is universal, since the number of cross-operations performed so far remains at a fairly modest level. This is especially true for certain exotic currencies.
conclusions
Cross-rates are a type of operations that is excellent for time zones, and is also characterized by a high degree of efficiency of currency exchange. This tool is of great importance for the trade and industrial sectors of the economies of the countries, since the lesser number of opponents involved in such transactions, the better.