Business Degree Certification Practice Test

Given an exchange rate of $1 = ¥102.32 and $1 = C$1.0958, the equivalent exchange rate of C$1 is referred to as what?

1. Interest rate

2. Open exchange rate

3. Forward rate

4. Cross-rate

The correct answer is: Cross-rate

The correct term for the equivalent exchange rate of C$1 in terms of another currency, in this case, Japanese Yen, is known as the cross-rate. A cross-rate is a currency exchange rate that does not involve the US dollar. Instead, it is derived from the exchange rates of two other currencies against the US dollar. In this scenario, you're comparing the Canadian dollar (C$) to the Japanese yen (¥) through their common relationship with the US dollar. First, you convert C$ to USD using the exchange rate $1 = C$1.0958, and then convert USD to Japanese yen using $1 = ¥102.32. This calculation ultimately gives you the cross-rate between the Canadian dollar and the Japanese yen. The concept of cross-rates is essential in foreign exchange markets, as it allows traders to exchange currencies without directly using the US dollar, strengthening trade and investment relationships between countries.