Currency exchange rate and cross currency rate are terms from the field of finance and currency market used to describe the price of one currency in relation to another.

Currency Exchange Rate:

The currency exchange rate is the ratio of the value of one currency to another at a specific point in time.

Currency exchange rates are usually expressed in terms of how many units of one currency can be exchanged for a certain amount of another currency.

For example, the exchange rate of the US dollar to the euro can be expressed as “1 US dollar equals 0.85 euros,” meaning that one US dollar can be exchanged for 0.85 euros.

Currency exchange rates can be fixed or floating.

In the case of a fixed exchange rate, the country’s central bank sets a specific value for the exchange rate relative to other currencies and maintains its stability through market intervention.

In the case of a floating exchange rate, its value is determined by the demand and supply in the currency market.

Cross Currency Rate:

Cross currency rate is the exchange rate between two currencies determined through a third currency. To calculate the cross currency rate, the exchange rate of each currency to the third currency is used.

For example, if there are exchange rates of the US dollar to the euro and the US dollar to the Japanese yen, then the cross currency rate between the euro and the yen can be calculated by dividing the exchange rate of the dollar to the euro by the exchange rate of the dollar to the yen.

In other words, cross currency rate is the exchange rate between two currencies that are not the national currencies of the country where the trading occurs. Cross currency rate allows determining the value of one currency relative to another currency based on their exchange rates in relation to a third currency.

Cross currency rates are often used in the international currency market to determine the value of one currency relative to another, especially when there is no direct exchange rate between these currencies.

In other words, there isn’t always a direct exchange rate between all currencies. For example, if it involves currencies that are not traded in international markets, the exchange may occur through an intermediary currency or under other specific conditions.

There is also the concept of an “indirect exchange rate“, which allows determining the exchange rate between currencies through an intermediary currency or a currency basket.