Q: Based on the USD/GBP and USD/SFr quotes, what is the bank cross rate? Answer: A. GBP/SFr: .4278 - 78 I read the answer which says to take the mid points of the bid ask, but I cant back into these values. Could someone elaborate?
I just did this question yesterday… The bid rate in the GBP/SFr is the rate a trader can convert SFr into GBP (Remember “Up the bid”). To do this indirectly through USD, convert SFr into USD at the bid rate of 0.8550 (“Up-the’bid”) and then convert USD to GBP at ask rate of 2.0020. (So 0.8550 divided by 2.0020) = 0.4271. The ask rate in the GBP/SFr is the rate a trader can convert GBP into SFr (“down the ask”). To do this indirectly through USD, convert GBP into USD at the bid rate of 2.0010 ("up the bid) and then convert USD to SFr at the ask rate of 0.8560 (“down the ask”). Therefore you get 0.8560/2.0010 = 0.4278