A mechanism whereby an exchange rate can be calculated between two currencies for which no direct rate of exchange exists. The US dollar, which is customarily used as the vehicle currency in foreign-exchange trading, is the common denominator of such calculations. Thus, there may not be a direct rate between, say, the Barbados dollar and the Argentine peso. A cross-rate is calculated by dividing the $US rate for the peso by the $US rate for the Barbados dollar, showing how many Barbados dollars are needed to purchase one peso.
Subjects: Financial Institutions and Services — Accounting.