Question

Dollar to Euros: 1.0907 Dollar to Pounds: 1.2302

Calculate how many units of your second foreign currency you would have
received if you converted 40,000,000 Euros into the second foreign currency
based on the implied cross rate?

Answer 1

Dollar to Euros: 1.0907

Dollar to Pounds: 1.2302

We need to find the cross rate Pounds to Euros given the above two currency pairs

We will invert the second pair Dollar to Pounds and multiply it with Dollar to Euros

Pounds to Dollars = 1 / 1.2302 = 0.8129

So the cross rate Pounds to Euros = Pounds to Dollars x Dollars to Euros

= 0.8129 x 1.0907

= 0.8866

Now to convert 40,000,000 Euros into Pounds multiply it by the above cross rate

40,000,000 Euros x Pounds to Euros

= 40,000,000 Euros x 0.8866

= 35,464,000 Pounds

35,464,000 Pounds (second foreign currency) would be received on conversion of 40,000,000 Euros into Pounds (second foreign currency) based on the Pounds to Euros (implied cross rate)