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Calculating exchange rates

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  • 10-12-2014 4:04pm
    #1
    batnolan
    Registered Users Posts: 75 ✭✭


    Full disclosure, I am practicing exchange rates for an exam but am having trouble calculating the exchange rate. The question is:

    Suppose the spot EUR/USD exchange rate is 1.2460/80. The GBP/USD exchange rate is 1.7510/20. Calculate the EUR/GBP exchange rate.

    Even if you guys could direct me to a site that details the method I would be very grateful.

    I would really appreciate any help!

    Many thanks


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    #2
    Geuze
    Registered Users Posts: 13,491 ✭✭✭✭Geuze


    I'll have a go, using simple logic.

    Suppose the spot EUR/USD exchange rate is 1.2460/80. The GBP/USD exchange rate is 1.7510/20. Calculate the EUR/GBP exchange rate.


    You have been given A=B, and C=B, and you are asked for A=C.


    Let's start.

    1 euro = 1.2470 USD A=B

    1 pound = 1.7515 USD C=B


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    #3
    Geuze
    Registered Users Posts: 13,491 ✭✭✭✭Geuze


    OK,

    here is one way, probably not the best way.

    First, get 1 USD in euros.

    So that's 1 / 1.247 = 0.8019 euro.

    So 1 USD = 0.8019 EUR

    Next we know a pound is worth 1.7515 USD, so a pound buys (1.7515)(0.8019 EUR) = 1.40457 euros.


    So 1 GBP = 1.7515 USD = 1.40457 eur


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    #4
    Geuze
    Registered Users Posts: 13,491 ✭✭✭✭Geuze


    But, we are asked for EUR/GBP, so I assume that means to 1 euro.

    So we need to invert the GBP/EUR exchange rate that we got earlier.

    So it's 1 / 1.40457 = 0.7119.

    So 1 euro = 0.7119 GBP.


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