Cross-rates are a phenomenon that relates tothe category of currency exchange operations, which has spread to Forex. It is interesting that this phenomenon involves carrying out transactions with currency pairs in which the dollar does not appear as a basic or priority currency.
Since in the Forex market most transactions withcurrency is made with the dollar, cross-rates are the prerogative of exclusively traders who have a very impressive trading experience, a set of knowledge of the micro- and macroeconomic situation in the country whose currency participates in the trades. But quite often the dollar also takes part in this type of trading.
Among the most popular types of cross-rates are the following:
- Yen and Swiss franc;
- pound sterling and the Canadian dollar.
For these pairs, the principle of reverse and direct quotation of currencies is not applicable.
In general, there are three main currency quotes on the Forex market:
- The cross-quotation described here.
- Direct - this is the unit of the existing foreigncurrency, displayed in dollar terms. Usually it is prescribed as follows: JPY / USD (in this pair the foreign currency of interest is the first one).
- Reverse - a unit of the US dollar, expressed in the currency of a foreign country. It is prescribed similarly to direct quotation, but in such a pair the dollar is in the first place: USDEUR.
Recently, the dollar and the euro have become permanentparticipants of cross-rates for the majority of world currencies, therefore it is difficult to underestimate the importance of their calculations. In this case, cross-rates are an opportunity to conduct trades, and it is calculated in three ways, if it is a dollar. You should consider them:
- There is an importer with a partner from Hong Kong.The dealer needs to calculate the transactions based on the quotation and the Hong Kong dollar, and the ruble. On the market, such transactions are not listed, therefore, as an output, a dollar cross-rate can serve as an exit. And then the scheme is quite simple: rubles are bought, they are exchanged for dollars, and then US dollars are exchanged for Hong Kong. And then a couple of courses are used right away.
- Indirect way.In this case, the dollar serves as a cross-currency for one of a pair of currencies, for example, from a pair of ruble and pound sterling, it refers to the second. The operation is accomplished by multiplying the dollar rates of these two currencies against each other.
- The specific method assumes that the dollar refers to both currencies from the pair, so for the calculation it is necessary to divide one into the second.
There is similarity with dollar calculations, but with some differences. However, there is also a simplified scheme, most often used by dealers. It includes the following:
- Detection of average indicators for the sale and purchase of each currency against the euro.
- By means of calculations, the current average cross-rate of the euro is determined.
- The average value for the euro is extended to both opposite sides to fix the spread value. And this allows you to get the value of the course and purchase, and sales according to the cross-rate of the euro.
Forming a separate type of instrument, suchas cross-courses, is not a spontaneous decision. In fact, transactions in which the position of the dollar is not a priority, have a whole range of advantages in use. To understand this, you need to slightly abstract from the principles of the Forex currency exchange as an international structure, but consider the benefits of this tool for individual financial structures and corporations engaged in trading outside of their state.
For the successful conduct of economic analysisit is very important to know about the state of the oil, gas and industrial raw materials market. The priority for the conduct of international cooperation is the US dollar. And this is understandable, because, despite the current situation, the most economically developed country is the United States. But the dollar is characterized by periodic fluctuations. That is why it is more correct to conduct operations in which foreign currencies participate, in which the economy is much more stable at the time of trading. That is why the cross-rate of the ruble is gradually becoming more popular.
For the correct selection of this toolIt is required to study the economic situation of the country, and for this traditionally apply the system of currency indices. This method is universal, since the number of cross-transactions produced so far remains at a fairly modest level. This is especially true of certain exotic currencies.
Cross-rates are the type of operations thatexcellent for time zones, and also characterized by a high degree of efficiency of the exchange. This tool is of great importance for the commercial and industrial sectors of the economies of countries, since the fewer opponents involved in such transactions, the better.
