Method requires that you set up cross-rate multiplication

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Reference no: EM131090469

Cross-rates allow you to calculate a third exchange rate from two that are known and that have a common currency. The method requires that you set up the cross-rate multiplication so that the common currency is canceled out. For example, if a U.S. dollar is worth 80 yen or 1.4 Canadian dollars, then how many yen is 1 Canadian dollar worth? This can be determined by setting up a cross-multiplication that cancels out the common currency, in this case the U.S. dollar. You can't just go (80 yen/1 dollar) x (1.4 Canadian dollars/1 dollar) because the dollar doesn't cancel. Thus you must invert one side or the other such as obtaining .013 dollars/1 yen. Now you can just do (.013 dollars/yen) x (1.4 Canadian dollars/1 dollar) = .013 x 1.4 and you will have the number of Canadian dollars per yen. If you want it as yen per Canadian dollars, just invert it. If the Danish Crone is 7.5 Kr/dollar and the British pound is worth $1.58, then what is the exchange rate in Kr per British pound?

Reference no: EM131090469

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