Mod - 3 - Cross FX

[Jin Yoong]

Question from a friend:

You will be receiving EUR 30,000 but need to settle a bill in CHF for
CHF 50,000. What is your shortfall or extra in CHF based on the
following rates?

EUR/USD 1.4169/73
USD/CHF 1.1818/22

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Answer:

Since you are settling a bill in CHF, you need CHF (need to buy CHF,
sell EUR). So need to get the quote for bid side of EUR/CHF.

For the bank to quote the bid for EUR/CHF, the bank will need the
following to square in the market:

Sell USD/CHF at 1.1818
Sell EUR/USD at 1.4169

so the quote for EUR/CHF = 1.4169 x 1.1818 = 1.67449

So EUR 30,000 will be equivalent to 30,000 x 1.67449 = CHF 50,234.77

So there is a extra of CHF 234.77