Question

Suppose that one year ago the spot rate for the British pound was $1.89 per pound, while the spot rate for the peso was $1.05 per peso.

The cross rate of the British pound one year ago was £1 = ___ pesos.

Suppose that now the spot rate for the British pound is $2.00 per pound, while the spot rate for the peso was $1 per peso.

Now, the cross rate of the British pound is £1 = ____ pesos. This represents a ____ percent change in the cross rate of the British pound.

Answer 1

Answer : Calculation of Cross Rate 1 year ago

Given ,

1 pound = $1.89

==> $1 = Pound (1 / 1.89)

1 peso = $1.05

==>$1 = Peso (1 / 1.05)

Equating $ 1

Pound (1 / 1.89) = Peso (1 / 1.05)

£1 = (1.89 / 1.05)Pesos

Or  £ 1 = 1.8 Pesos

Calculation of Cross Rate Today

Given ,

1 pound = $2

==> $1 = Pound (1 / 2)

1 peso = $1

==>$1 = Peso

Equating $ 1

Pound (1 / 2) = Peso (1 )

£1 = (2 / 1)Pesos

Or  £ 1 = 2 Pesos

% change = [(2 - 1.8) / 1.8] = 11.11%