The term “cross rate” can also be used to refer to any currency pairs that do not include the U.S. dollar. Cross rates are used to calculate the exchange rate for a currency pair whose exchange rate is not commonly quoted.
For example, EUR/GBP, CHF/JPY, or AUD/NZD.
This process is known as a cross rate because the exchange rate is calculated by comparing the value of each currency in the pair against a third (major) currency, usually the U.S. dollar.
For example, if you know the AUD/USD and NZD/USD exchange rates, you can cross these to calculate the AUD/NZD exchange rate.
The base currency always has a value of one, and is the reference currency for the exchange rate of the currency pair.
Vincent Nyagaka is a Professional Trader, Analyst &. He has been actively engaged in market analysis for the past 7 years. He has a monthly readership of 100,000+ traders and has taught over 1,000 students since 2014. Vincent is also an experienced instructor and public speaker. Checkout Vincent’s Professional Trading Course here.