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Citibank quotes U.S. dollar per pound: $1.5000/£ National Westminster quotes euros per pound: €2.0000/£ Deutschebank quotes...

Citibank quotes U.S. dollar per pound: $1.5000/£

National Westminster quotes euros per pound: €2.0000/£

Deutschebank quotes U.S. dollar per euro: $0.7550/€

a. Calculate implied/theoretical cross rate between euro and pound.

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Answer #1

a. Implied/theoretical cross rate is the rate which will be calculated indirectly.

As the direct exchange rate between euro and pound is given by National Westminster i.e. €2.000/£

But the implied cross rate will be calculated using Citibank and Deutsche Bank rates.

As, $1.500/£ as per Citibank and $0.755/€ as per Deutsche Bank.

So, Cross rate between neuro and pound = $1.50/£ ÷ $0.755/€

= $1.50/£ * €/$0.755

= €1.50/0.755£

= €1.98675/£

= €1.9868/£

Hence, Implied/Theoretical cross rate between Euro and Pound = €1.9868/£

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