Forex Cross Rates

The speaker discusses the concept of cross rates in the forex market.  He suggests that a cross rate is needed in a currency pair which does not include the US dollar.  Since US dollars are the main currency in the forex market, most rates are derived using the dollar quote; however, there are situations where this is not the case; hence the need for a cross rate.  CHF/JPY, EUR/GBP, EUR/JPY, and the EUR/CHF are common examples where this the case.  Therefore, to obtain a cross rate for the EUR/JPY, dollars are bought at the Japanese Yen rate and using these dollars, Euro's are bought at the Eurodollar rate.  Through common arithmetic, EUR/JPY is produced.  USD/JPY * EUR/USD
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