Welcome to the Investors Trading Academy talking
glossary of financial terms and events. Our word of the day is “Cross Currency”
A cross currency is a pair of currencies traded in forex that does not include the U.S. dollar.
One foreign currency is traded for another without having to first exchange the currencies
into American dollars. Not long ago an individual who wished to exchange a sum of money into
a different currency would be required to first convert that money into U.S dollars,
and then convert it into the desired currency; cross currencies help individuals and traders
bypass this step. The GBP/JPY cross, for example, was invented to help individuals in England
and Japan who wanted to convert their money directly without having to first convert it
into U.S dollars. A cross-currency transaction is one which
involves the simultaneous buying and selling of two or more currencies. An example is the
purchase of Canadian dollars with yen and the simultaneous sale of yen for U.S. dollars.
The term is also used generically for any transaction that involves more than one currency,
such as a currency swap.