Chartered Financial Analyst Level 1

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Explanation:

To calculate the EUR/GBP cross rate, the formula is USD/GBP multiplied by the inverse of USD/EUR (i.e., EUR/USD). This ensures the intermediary currency (USD) cancels out. The correct calculation is:

$\text{EUR/GBP} = \text{USD/GBP} \times (\text{USD/EUR})^{-1} = 1.2604 \times \frac{1}{1.1786} \approx 1.0694$

Option A incorrectly inverts the USD/EUR rate and calculates GBP/EUR instead. Option C multiplies the two rates directly without inversion, leading to an incorrect result.

Explanation:

To calculate the EUR/GBP cross rate, the formula is USD/GBP multiplied by the inverse of USD/EUR (i.e., EUR/USD). This ensures the intermediary currency (USD) cancels out. The correct calculation is:

$\text{EUR/GBP} = \text{USD/GBP} \times (\text{USD/EUR})^{-1} = 1.2604 \times \frac{1}{1.1786} \approx 1.0694$

Option A incorrectly inverts the USD/EUR rate and calculates GBP/EUR instead. Option C multiplies the two rates directly without inversion, leading to an incorrect result.

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An analyst gathers the following information about spot rates: USD/GBP: 1.2604 USD/EUR: 1.1786 USD/GBP represents the amount of USD per 1 GBP, and USD/EUR represents the amount of USD per 1 EUR. The spot EUR/GBP cross rate is closest to:

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0.9351

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1.0694

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1.4855