Advanced Financial Management · Foreign Exchange Exposure and Risk Management

Exchange Rate Quotes and Cross Rates for CA Final AFM

Updated 5 October 2026 · Fact-checked

An exchange rate quote gives the price of one currency in another. The bid is where the bank buys the base currency; the ask is where it sells. For cross rates, chain two quotes so the common currency cancels. For multiplication use bid×bid and ask×ask; for division use bid÷ask and ask÷bid. Forward premium or discount compares forward with spot.

Understand Exchange Rate Quotes and Cross Rates

An exchange rate is the price of one currency expressed in another. In any quote, the currency whose price is being stated is the base currency. The other is the quote (term) currency. In USD/INR = 83.00, USD is the base and INR is the quote. One dollar costs ₹83.00.

A direct quote (from the Indian view) gives the rupee price of one unit of foreign currency, such as ₹83 per USD. An indirect quote gives the foreign currency per rupee (or per 100 rupees), such as USD 0.01205 per ₹1. The two are reciprocals: indirect = 1 ÷ direct. Read the question carefully, because the same rate can be written either way.

Banks quote two-way prices. The bid is the rate at which the bank buys the base currency from you. The ask (offer) is the rate at which the bank sells the base currency to you. Ask is always higher than bid. The difference is the spread, which is the bank's margin. Always take the view of the bank: you sell the base currency at the bid and buy it at the ask.

A cross rate is the rate between two currencies derived from each one's rate against a third, usually USD. For example, you may be given USD/INR and USD/EUR and need EUR/INR. You choose bid or ask by asking which transactions the bank is doing in each leg.

A forward rate is a rate fixed today for delivery later. If the forward price of the base currency is higher than spot, the base currency is at a premium. If lower, it is at a discount. The premium or discount is usually quoted as an annualised percentage.

Key rules to remember

Direct and indirect quote: Indirect quote = 1 ÷ Direct quote; For a two-way quote, invert and swap: indirect bid = 1 ÷ direct ask; indirect ask = 1 ÷ direct bid.
Spread: Spread = Ask − Bid; Spread % = (Ask − Bid) ÷ Ask × 100 is common; some questions use bid as the base. Follow the question's wording.
Cross rate (common currency in the quote position of both): For A/C from A/B and C/B (B is the common quote currency): A/C = (A/B) ÷ (C/B). Bid A/C = Bid A/B ÷ Ask C/B; Ask A/C = Ask A/B ÷ Bid C/B; Divide bid by ask and ask by bid to widen the spread correctly.
Cross rate (chained quotes): For A/C from A/B and B/C: A/C = (A/B) × (B/C). Bid = Bid × Bid; Ask = Ask × Ask; Use only when the common currency is the quote currency in the first quote and the base currency in the second, as in A/B and B/C. A/B means units of B per one unit of A. If a quote is given the other way round (for example USD/EUR when you need EUR/USD), invert it first and swap its bid and ask.
Forward premium or discount (annualised): Premium or (discount) % = (Forward − Spot) ÷ Spot × 12 ÷ n × 100; n is the forward period in months. Rate must be in the same quote as spot (e.g. both INR per USD). Positive means premium for the base currency.
Forward rate from premium or discount: Forward = Spot × [1 + (Premium % × n ÷ 12)]; Use a minus sign for a discount. Apply to bid and ask separately when points are given.
Forward points: Outright forward = Spot + Premium points (or − Discount points); First convert the points to the same unit as the spot rate (for example 40 paise = ₹0.40). If the first (bid) points are smaller than the second (ask) points, add both to spot: this is a premium. If the first points are larger than the second, subtract both: this is a discount. Check that the forward ask stays above the forward bid.

How to solve Exchange Rate Quotes and Cross Rates questions

Use this order for any quote, cross rate or forward question. It keeps the bid and ask straight.

1Write each given rate as BASE/QUOTE, with both bid and ask. Note which currency is the base.
2Decide who is dealing. Bank buys at bid and sells at ask for the base currency. Mark what the customer does.
3If the quote form differs from what you need, invert. Remember the swap: new bid = 1 ÷ old ask, new ask = 1 ÷ old bid.
4For a cross rate, write the target pair first. Check if you need to divide or multiply so the common currency cancels.
5Pair the numbers the bank-way: for a multiplication use bid × bid and ask × ask; for a division use bid ÷ ask and ask ÷ bid.
6For forward questions, add premium or subtract discount from spot, bid and ask separately. Then compute annualised % on the same quote basis.
7Check that ask is greater than bid and the spread looks sensible. State the answer with the quote direction and unit.

Quickest way: Cancel the common currency and widen the spread

When to use it: Use for any cross-rate question where two quotes against a third currency are given and you must find a third pair.

Write the target pair as a chain, for example EUR/INR = EUR/USD × USD/INR. Here EUR/USD means USD per one EUR. If the question gives USD/EUR (EUR per USD), invert it first and swap its bid and ask.
Check the currencies cancel. If not, flip one rate and swap its bid and ask.
For a chain like this, multiply bid by bid for the bid and ask by ask for the ask. If you are dividing instead, use bid ÷ ask for the bid and ask ÷ bid for the ask.
Sanity check: bid is below ask. If it is not, you paired the wrong values.
For forward premium, subtract spot from forward, divide by spot, then multiply by 12 ÷ months.

Common mistakes in Exchange Rate Quotes and Cross Rates

Using the same side (bid with bid) when dividing rates.
Students carry the multiplication habit into division.
Fix: For division, use bid ÷ ask for the lowest result and ask ÷ bid for the highest. Bid × bid and ask × ask apply only when both quotes are in chained base/quote form (A/B and B/C). Check the spread is positive.
Inverting a two-way quote without swapping bid and ask.
Students invert each number in place.
Fix: Indirect bid = 1 ÷ direct ask and indirect ask = 1 ÷ direct bid. The higher direct rate gives the lower indirect rate.
Taking the customer's side instead of the bank's side.
Bid and ask are defined for the dealer, which feels reversed.
Fix: Decide first who the bank is buying from. The bank buys base currency at bid and sells it at ask. The customer does the opposite.
Calculating premium on the wrong base.
Forward is divided by forward, or the quote direction is mixed up.
Fix: Divide by spot, with both rates in the same quote. If the quote is inverted, the premium becomes a discount.
Forgetting to annualise the premium.
Students stop at the percentage for the forward period.
Fix: Multiply by 12 ÷ months. A 3-month change of 1% is 4% per year.
Adding forward points the wrong way.
Points are quoted without a sign.
Fix: First put the points in the same unit as the spot rate (paise to rupees, for example). If the first (bid) points are smaller than the second (ask) points, add both to spot: premium. If the first points are larger, subtract both: discount. Always check the forward ask stays above the forward bid.

Worked examples

Example 1

A bank quotes USD/INR at 82.90 – 83.10 and USD/EUR at 0.9200 – 0.9250 (EUR per USD). An exporter needs EUR/INR to convert euro receipts. What is the EUR/INR bid and ask?

Show the solution

Target is EUR/INR = USD/INR ÷ USD/EUR, since EUR per USD in the denominator cancels USD.
The exporter sells euros, so the bank buys EUR and pays INR. The bank needs the lowest EUR/INR rate, which is the bid.
The bank buys EUR and gives USD, so it gives the fewest USD per EUR. That means it divides by the larger EUR-per-USD figure, 0.9250. It then converts those USD into INR at the lower USD/INR bid of 82.90.
Bid EUR/INR = Bid USD/INR ÷ Ask USD/EUR = 82.90 ÷ 0.9250 = 89.62.
Ask EUR/INR = Ask USD/INR ÷ Bid USD/EUR = 83.10 ÷ 0.9200 = 90.33.
Check: bid 89.62 is below ask 90.33.

Answer: EUR/INR = ₹89.62 – ₹90.33. The exporter receives ₹89.62 per euro.

Example 2

Spot USD/INR is 83.00 – 83.20. The 3-month forward points are 40 – 50 paise. Find the 3-month outright forward rates, and the annualised forward premium on the ask rate, using spot ask as the base.

Show the solution

Convert the points to rupees: 40 paise = 0.40 and 50 paise = 0.50. The bid points (0.40) are smaller than the ask points (0.50), so they are a premium. Add them.
Forward bid = 83.00 + 0.40 = 83.40.
Forward ask = 83.20 + 0.50 = 83.70.
Premium on ask = (83.70 − 83.20) ÷ 83.20 = 0.50 ÷ 83.20 = 0.6010%.
Annualise: 0.6010% × 12 ÷ 3 = 2.40%.
Check: forward ask is above spot ask, so USD is at a premium.

Answer: Forward USD/INR = 83.40 – 83.70. USD is at an annualised premium of about 2.40% on the ask rate.

Exam tips

Write BASE/QUOTE above every rate before you start. Most lost marks come from direction errors.
State whose side you are on, for example 'bank buys USD at bid', in one line. It earns method marks even if a number slips.
Show the spread check at the end. Bid must be less than ask.
In case-scenario MCQs, look for the unit words such as 'per USD' or 'per ₹100'. They decide direct or indirect.
Give the premium or discount figure with the word premium or discount and the annualised rate. Do not leave only a number.

Practice questions from Foreign Exchange Exposure and Risk Management

Exchange Rate Quotes and Cross Rates in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Exchange Rate Quotes and Cross Rates: frequently asked questions

How do I calculate a cross rate with bid and ask?

Write the target pair as a product or ratio of the given pairs so the common currency cancels. For a product, multiply bid by bid and ask by ask. For a ratio, divide the numerator's bid by the denominator's ask for the bid, and the numerator's ask by the denominator's bid for the ask.

What is the difference between direct and indirect quotes?

A direct quote gives the home currency price of one unit of foreign currency, such as ₹83 per USD for India. An indirect quote gives foreign currency per unit of home currency, such as USD 0.012 per ₹1. They are reciprocals, and for a two-way quote you swap bid and ask when inverting.

How do I find forward premium or discount?

Take forward minus spot, divide by spot, then multiply by 12 ÷ months to annualise. A positive result means the base currency is at a premium, a negative one a discount. Keep both rates in the same quote direction.

Why is the ask always higher than the bid?

The ask is the price at which the bank sells and the bid is the price at which it buys. The bank earns its margin from the gap, called the spread. If your answer has bid above ask, you have paired the wrong rates.