- CFA Exams
- CFA Exam: Level I 2021
- Study Session 5. Economics (2)
- Reading 18. Currency Exchange Rates
- Subject 3. Cross-Rate Calculations

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**CFA Practice Question**

Suppose the Brazilian real is quoted at $:R = 0.9955 - 1.0076 and the Thai baht is quoted at $:B = 25.2513 - 3986. What is the direct quote for the real in Bangkok (R:B)?

B. 25.1376 - 2654

C. 25.0608 - 5134

A. 30.5541 - 6456

B. 25.1376 - 2654

C. 25.0608 - 5134

Correct Answer: C

Ask cross rate for the real = 25.3986/0.9955 = 25.5134

Therefore, the direct quotes for the real in Bangkok (R:B) are 25.0608 - 5134.

Bid cross rate for the real (R:B) = 25.2513/1.0076 = 25.0608

Ask cross rate for the real = 25.3986/0.9955 = 25.5134

Therefore, the direct quotes for the real in Bangkok (R:B) are 25.0608 - 5134.

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**User Contributed Comments**
7

User |
Comment |
---|---|

schweitzdm |
I can't be the only one loathing this section |

robbiecow |
Best way to think about this is if you get it the question in Bid-Ask format and are asked for the cross rate just think of the letter "X" for cross and align each Bid-Ask to the correct point. |

ankurwa10 |
Please explain the entire approach Robbiecow, including how you solved it. Thanks |

ankurwa10 |
On second thoughts, here's how I got the answer right. Don't know if the approach is right. the concept of cross-currency is that: you sell one currency (GBP) to get some $; and then use this $ to buy another currency (Bhat) now, when selling GBP --> you need the highest price, so use the ask rate. i.e. since $:R => R/$ = 1.0076 (remember the reading where it says that if S => a:b (in division terms it is b/a) when buying Bhat --> you need the cheapest price, so use the bid rate. i.e. since $:B => B/$ = 25.2513 Now, solve to eliminate the $, you get R/B = 25.2513 and since R/B => B:R which is the Direct quote for Bhat:GBP. What I am confused about is why do separate bid/ask rate calculations. Also, does the concept I outlined above apply to this method (that of calculating bid and ask spread) |

oprea_cl |
QUICK TIP: If the BASE currency is on: 1. Same side - cross divide the quotes (larger nr / smaller number) 2. Different sides - multiply same side |

davidt876 |
Price/Base ask - buy base Price/Base bid - sell base THB/BRL ask - price in THB to buy 1 BRL (buy base) THB/BRL bid - value of THB received when selling 1 BRL (sell base) you only need to calculate 1 to eliminate the other answers. I chose to find the bid by seeing how much THB i get for selling 1 BRL Sell 1 BRL & Buy 'x' USD - use ask price of BRL/USD because you're buying base: ask = 1.0076 BRL/USD [invert the ask price to end in USD and not BRL^2/USD] x = 0.992457 USD/BRL * 1 BRL x = 0.992457 USD Sell USD & Buy 'y' THB - use bid price of THB/USD because now you're selling base: bid = 25.2513 THB/USD [don't invert because otherwise you'll end up with USD^2/THB] y = 25.2513 THB/USD * 0.992457 USD y = 25.0608 THB |

ashish100 |
Find value 1 unit of currency used on both sides. Use two values and equal them together THEN BOOM |