OVERVIEW
A cross rate is any currency pair in which neither the base currency nor the quote currency is the U.S. Dollar. For example, a long position in the British Pound with a simultaneous short in the Swiss Franc is a cross rate. Obviously. this definition is relative.
When trading Forex markets in Tokyo, the EURUSD currency pair is considered a
cross rate.
Cross rate futures provide a way for banks, corporations, money managers, and
individuals with the tools to manage the risks associated with currency rate fluctua-
tion and to take advantage of profit opportunities stemming from changes in cur-
rency rates. Currency cross rate futures are physically delivered at expiration.
Exercised options contracts are settled by the delivery of futures contracts.
Visit http://www.cme.com/trading/prd/fx/crossrate2625.html for additional information.
In the analysis below, we will restrict ourselves to those cross rates involving the
major currencies EUR, GBP, CHF, and JPY.
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