Question

A German firm is attempting to determine the euro/pound exchange rate and has the following information:...

A German firm is attempting to determine the euro/pound exchange rate and has the following information:

GBP/USD = $1.23/£

EUR/USD = $1.10/€

Therefore, the GBP/EUR rate must be

Question 6 options:

€1.118/£


€0.894/£


€0.7316/£


£1.353/€
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Answer #1

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We have =>   GBP/USD = $1.23/£    &   EUR/USD = $1.10/€

=> 1 GBP = 1.23 USD

Converting it in USD terms -

1 USD = 1 / 1.23 GBP

1 USD = 0.813 GBP

Similarly- 1 EUR = 1.10 USD

1 USD = 1 / 1.10 EUR

1 USD = 0.909 EUR

SO,

=> 0.813 GBP = 1 USD = 0.909 EUR

0.813 GBP = 0.909 EUR

1 GBP = 0.909 / 0.813 EUR

GBP / EUR = 0.909 / 0.813

= 1.1182

Therefore, the GBP/EUR rate must be €1.118/£.

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