Glossary

Cross rates are exchange rates between two currencies that do not involve the most traded currencies: USD and EUR. Examples of well-known cross rates are GBP-JPY and AUD-NZD. As with currencies involving USD and EUR, the base currency is the first currency appearing in the pair quotation. Cross rates are linked by triangular arbitrage. If GBP-USD trades at 1.30 and USD-JPY trades at 105, then GBP-GBP must trade at or very close to 136.50 to make arbitrage impossible.