Question : What is the term used to describe the exchange rate between two currencies that does not involve the U.S. dollar?
Option 1: Cross exchange rate
Option 2: Spot exchange rate
Option 3: Nominal exchange rate
Option 4: Real exchange rate
Correct Answer:
Cross exchange rate
Solution : The correct answer is (a) Cross exchange rate.
A cross exchange rate refers to the exchange rate between two currencies that does not involve the U.S. dollar. It is the rate at which one currency can be exchanged for another currency without using the U.S. dollar as an intermediate currency.
For example, if you want to determine the exchange rate between the British pound (GBP) and the Japanese yen (JPY), without involving the U.S. dollar, you would be looking at the GBP/JPY cross exchange rate.
Cross exchange rates are important for individuals and businesses engaged in international trade or investment involving currencies other than the U.S. dollar. These rates allow them to directly convert between two specific currencies without going through the U.S. dollar as an intermediary.
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