Strategic Financial Management · Foreign Exchange Market

Exchange Rate Quotations and Cross Rates for CMA Final SFM

Updated 11 October 2026 · Fact-checked

An exchange rate is the price of one currency in terms of another. A direct quote gives home currency per unit of foreign currency; an indirect quote gives foreign currency per unit of home currency. Banks quote a bid (they buy) and an ask (they sell). A cross rate is derived from two rates against a common currency, usually by multiplying or dividing so the base currency cancels.

Understand Exchange Rate Quotations and Cross Rates

Every exchange rate has two currencies: the base currency (the one you are pricing, with one unit) and the quote currency (the one that gives the price). In USD/INR = 83.20, USD is the base and ₹83.20 is the price of one dollar.

From India's side, a direct quote is rupees per one unit of foreign currency (₹83.20 per USD). An indirect quote is foreign currency per one rupee (USD 0.01202 per ₹1). One is the reciprocal of the other. Most Indian quotes are direct. Check the wording of the question, because some problems give quotes in the other form.

Banks always quote two 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. The ask is higher than the bid. The difference is the spread, which is the bank's margin. Always remember the viewpoint is the bank's, not the customer's.

A cross rate is the rate between two currencies obtained through a third one, usually USD, when no direct quote is given. You build it so the common currency cancels out. For bid and ask, you must pick the right side of each rate so the result is what the bank would really pay or charge.

A currency appreciates when it buys more units of another currency, and depreciates when it buys fewer. If USD/INR moves from 80 to 84, the dollar has appreciated and the rupee has depreciated. The two percentages are not equal, because they have different bases.

Key rules to remember

Direct and indirect quote: Indirect quote = 1 ÷ Direct quote; Reciprocal of bid gives the ask of the reversed pair, and reciprocal of ask gives the bid. Bid and ask swap places.
Reversing a two-way quote: If A/B = Bid / Ask, then B/A = (1 ÷ Ask) / (1 ÷ Bid); The lower number of the new quote comes from the higher number of the old one.
Spread: Spread = Ask − Bid; Spread % = (Ask − Bid) ÷ Ask × 100; Some questions use bid as the denominator. Follow the question's instruction, otherwise use ask and state it.
Cross rate, common currency on the same side: A/C = (A/B) × (B/C); Bid A/C = Bid A/B × Bid B/C; Ask A/C = Ask A/B × Ask B/C.
Cross rate, common currency in the same position: A/C = (A/B) ÷ (C/B); Bid A/C = Bid A/B ÷ Ask C/B; Ask A/C = Ask A/B ÷ Bid C/B.
Appreciation or depreciation of a foreign currency (direct quote): % change = (New rate − Old rate) ÷ Old rate × 100; Positive means the foreign currency has appreciated against the rupee.
Rupee change from a rate move: Rupee depreciation % = (New − Old) ÷ New × 100 for a direct quote rise; The rupee's own value is the reciprocal, so its percentage change uses the new rate as the denominator.

How to solve Exchange Rate Quotations and Cross Rates questions

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

1Write each given rate as Base/Quote with its bid and ask. Mark which is the base currency.
2Identify the viewpoint: bank quoting to a customer, or customer dealing with the bank. The bank buys at bid and sells at ask.
3Decide what you need: direct to indirect, a cross rate, a spread, or a percentage change.
4For a cross rate, arrange the pairs so the common currency cancels, using multiplication or division as needed.
5For the bid of the result, take the combination most favourable to the bank (lowest). For the ask, take the highest.
6Calculate bid and ask separately. Do not average unless the question asks for a mid rate.
7Check that ask is above bid, and test sense: the result should be near a mid-rate cross.
8State the answer with units, such as ₹ per EUR, and add one line of interpretation or action.

Quickest way: Cancel-the-currency check

When to use it: Use when you must build a bid-ask cross rate under time pressure.

Write the target pair, for example EUR/INR.
Write the two given pairs as fractions so the middle currency cancels.
If you must flip a pair, flip it: bid becomes 1 ÷ old ask, ask becomes 1 ÷ old bid.
Once all are in the form needed, bid = bid × bid (or bid ÷ ask), ask = ask × ask (or ask ÷ bid).
Sanity check: ask must exceed bid.

Common mistakes in Exchange Rate Quotations and Cross Rates

Taking the reciprocal without swapping bid and ask
Students invert both numbers in place and keep the order.
Fix: New bid = 1 ÷ old ask and new ask = 1 ÷ old bid. Check that the new ask is higher.
Using the wrong side when dividing in a cross rate
Students divide bid by bid and ask by ask out of habit.
Fix: When dividing, use bid ÷ ask for the bid and ask ÷ bid for the ask, so the spread widens correctly.
Confusing the bank's and the customer's viewpoint
Bid and ask are named from the bank's side, but the question often describes the customer.
Fix: If the customer sells dollars, the bank buys them at bid. If the customer buys, the bank sells at ask.
Mixing direct and indirect quotes in one calculation
One rate is given as INR per USD and another as USD per INR, and students do not check.
Fix: Convert everything to the same form before calculating.
Using the old rate as the base for rupee depreciation
The same formula is applied to the foreign currency and to the rupee.
Fix: Foreign currency change uses old rate as the denominator. Rupee change is measured on the new rate when the quote is direct.
Calculating spread percentage on an unstated base
Textbooks differ on using bid or ask.
Fix: State which you used. Use ask unless the question says otherwise.

Worked examples

Example 1

A Mumbai bank quotes USD/INR as ₹83.10 – ₹83.30 and EUR/USD as 1.0800 – 1.0820. Calculate the EUR/INR bid and ask rates.

Show the solution

EUR/INR = EUR/USD × USD/INR. The common currency USD cancels.
Bid EUR/INR = 1.0800 × 83.10 = 89.7480.
Ask EUR/INR = 1.0820 × 83.30 = 90.1306.
Check: ask 90.1306 is above bid 89.7480.

Answer: EUR/INR is ₹89.7480 – ₹90.1306.

Example 2

A bank quotes USD/INR spot as 83.00 – 83.40 and GBP/USD as 1.2500 – 1.2540. A customer wants to sell pounds to the bank and receive rupees. Find the rate applicable, and the spread in the USD/INR quote as a percentage of the ask.

Show the solution

The bank buys GBP, so it uses the GBP/INR bid.
GBP/INR = GBP/USD × USD/INR. Bid = 1.2500 × 83.00 = 103.75.
Customer receives ₹103.75 per pound.
Spread in USD/INR = 83.40 − 83.00 = ₹0.40.
Spread % = 0.40 ÷ 83.40 × 100 = 0.4796%, about 0.48%.

Answer: The customer gets ₹103.75 per GBP. The USD/INR spread is ₹0.40, about 0.48% of the ask.

Exam tips

In MCQs, the most common traps are bid-ask reversal and wrong viewpoint. Read who is buying and who is selling before calculating.
Show the cancellation of the common currency in one line. It earns method marks even if arithmetic slips.
Keep four decimal places in intermediate rate work and round only the final answer.
If the question says quotes are Indian (direct) or American (indirect), restate them in one form before starting.
Add a one-line conclusion, such as which rate the customer receives, for the written questions.

Practice questions from Foreign Exchange Market

Exchange Rate Quotations 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 Quotations and Cross Rates: frequently asked questions

What is the difference between a direct and an indirect quote?

A direct quote gives units of home currency per one unit of foreign currency, for example ₹83 per USD. An indirect quote gives units of foreign currency per one unit of home currency, for example USD 0.012 per ₹1. They are reciprocals of each other.

Why is the ask always higher than the bid?

The bank buys at the bid and sells at the ask. The gap is its margin for handling the deal and for the risk of holding the currency. If the ask were lower, anyone could profit by buying and selling with the bank.

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

Arrange the two given pairs so the common currency cancels. If you multiply, multiply bid by bid and ask by ask. If you divide, divide the bid by the other pair's ask for the bid, and the ask by the other pair's bid for the ask.

If the dollar appreciates by 5%, does the rupee depreciate by 5%?

No. The rupee's percentage fall is smaller because it is measured on a higher new rate. For example, if USD/INR goes from 80 to 84, the dollar appreciates 5% but the rupee depreciates about 4.76%.