1. What is Currency Triangulation?

Currency triangulation is a method to calculate an exchange rate between two currencies (A and C) when you know their respective rates against a common third currency (B). This is commonly used in forex markets when direct exchange rates aren't available.

2. How Does the Calculator Work?

The calculator uses the triangulation formula:

Where:

• \( Rate_{A/B} \) — Exchange rate between currency A and B
• \( Rate_{B/C} \) — Exchange rate between currency B and C
• \( Rate_{A/C} \) — Resulting cross rate between currency A and C

Explanation: The equation multiplies the two known rates to derive the cross rate between the two currencies that don't have a direct exchange rate.

3. Importance of Cross Rates

Details: Cross rates are essential in international finance for currency conversions when direct quotes aren't available, for arbitrage opportunities, and for hedging strategies in forex markets.

4. Using the Calculator

Tips: Enter both known exchange rates (A/B and B/C) as positive numbers. The calculator will automatically compute the cross rate (A/C).

5. Frequently Asked Questions (FAQ)

Q1: Why use triangulation instead of direct rates?
A: When direct exchange rates between two currencies aren't quoted in the market, triangulation provides a way to calculate the implied rate.

Q2: Can this be used for any three currencies?
A: Yes, as long as you have exchange rates that share a common base or quote currency (the B currency in our formula).

Q3: How precise should the input rates be?
A: For financial applications, typically 4-6 decimal places are used. The calculator accepts up to 4 decimal places by default.

Q4: Does this account for bid-ask spreads?
A: No, this is a basic calculation. Real-world applications would need to consider whether to use bid or ask prices in each leg.

Q5: Can this method be used for arbitrage?
A: Yes, traders look for discrepancies between triangulated rates and direct quotes to identify arbitrage opportunities.