Chapter 17 Multinational Financial Management 543Because the quotations have the same denominator—one U.S. dollar—we can
calculate the cross rate between these (and other) currencies by using the Column
2 quotations. For our German national, the cross rates are found as follows:
Euro/yen exchange rate! Euro/$__Yen/$
And when we cancel the dollar signs, we are left with the number of euros that one
yen could purchase:
€0.6340/¥103.44! €0.0061/¥
Alternatively, we could! nd the number of yen that one euro could buy:
Yen/euro exchange rate! __Yen/$
Euro/$
¥103.44/€0.6340! ¥163.15/€
Note that those two cross rates are reciprocals of each other.
Financial publications such as The Wall Street Journal and web sites such as
Bloomberg, Yahoo, and The Wall Street Journal Online provide tables of key cur-
rency cross rates. Table 17-2 gives the table from The Wall Street Journal Online for
May 26, 2008. Notice that there may be slight differences when you calculate cross
rates due to the rounding of individual quotations. Currency traders carry quota-
tions out to 12 decimal places.
17-4b Interbank Foreign Currency Quotations
The quotations from The Wall Street Journal Online given in Tables 17-1 and 17-2 are
suf! cient for many purposes. For other purposes, however, additional terminol-
ogy and conventions are useful. There are two ways to state the exchange rate
between two currencies, in either American or European terms. Accordingly, we
need to designate one of the currencies as the “home” currency and the other as
the “foreign” currency. This designation is arbitrary. The home currency price of
American Terms
The foreign exchange rate
quotation that represents
the number of American
dollars that can be bought
with one unit of local
currency.American Terms
The foreign exchange rate
quotation that represents
the number of American
dollars that can be bought
with one unit of local
currency.
European Terms
The foreign exchange rate
quotation that represents
the units of local currency
that can be bought with
one U.S. dollar. “European”
is intended as a generic
term that applies globally.European Terms
The foreign exchange rate
quotation that represents
the units of local currency
that can be bought with
one U.S. dollar. “European”
is intended as a generic
term that applies globally.Direct Quotation:
U.S. Dollars Required to Buy
One Unit of Foreign Currency
(1)Indirect Quotation:
Number of Units of Foreign
Currency per U.S. Dollar
(2)
Brazilian real $0.6028 1.6589
British pound 1.9816 0.5046
Canadian dollar 1.0082 0.9919
Chinese yuan 0.1442 6.9365
Danish krone 0.2114 4.7304
Euro 1.5772 0.6340
Hungarian forint 0.006456 154.89
Israeli shekel 0.3018 3.3135
Japanese yen 0.009667 103.44
Mexican peso 0.0962 10.3983
South African rand 0.1299 7.6982
Swedish krona 0.1693 5.9067
Swiss franc 0.9760 1.0246
Venezuelan bolivar fuerte 0.46628742 2.1446
Note: Column 2 equals 1.0 divided by Column 1. However, rounding differences do occur.
Source: Adapted from The Wall Street Journal Online, http://online.wsj.com, May 27, 2008.
Tabl e 17 - 1 Sample Exchange Rates: Monday, May 26, 2008