CFA Level I · CFA Level I Exam · Exchange Rate Calculations
An analyst observes the following quotes: USD/EUR = 1.1000 (price of 1 EUR in USD) and USD/GBP = 1.3200 (price of 1 GBP in USD). The implied cross rate EUR/GBP (price of 1 GBP in EUR) is closest to:
The implied cross rate is 1.2000 euros per pound. Dividing the USD price of a pound (1.3200) by the USD price of a euro (1.1000) gives the euro price of a pound. Inverting gives 0.8333, and multiplying the quotes gives 1.4520, both incorrect.
- A0.8333
- B1.2000Correct
- C1.4520
Explanation
EUR/GBP = (USD/GBP)/(USD/EUR) = 1.3200/1.1000 = 1.2000 EUR per GBP. The value 0.8333 is the inverse (GBP per EUR), and 1.4520 results from multiplying the two quotes.
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