Why Cross Rates are Useful

Cross rates are useful for a variety of reasons.

Firstly if you don't have the financial data to hand as to how strong or weak a currency is relative to each other but you do have them against some base currency then it allows you to understand how strong one is relative to the other, or indeed how weak it is.

So there is the informational element.

However there is another more important reason. Now if you want to know the pound / euro rate, the true you don't need this conversion because the two are very frequently traded against each other.

But with some currencies that are very rarely traded against each other, then cross rates are needed to calculate the exchange rates for those two currencies.

For those where there is a direct market, because the currencies are widely traded against each other, then there is no need for cross rates to be used.

With the introduction of the Euro at the turn of the millenium then of course the number of rates and exchanges simplified a lot with the various pound franc, pound deutschmark etc rates being replaced with just the one measure - the pound against the euro.

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