PRMIA Exam 8006 Topic 4 Question 15 Discussion

Since AUD 1 = USD 0.6831, and USD 1 = SEK 8.1329, AUD 1 = SEK 8.1329*0.6831 = 5.5556.

It is important to remember how exchange rates are generally quoted. Most exchange rates are quoted in terms of how many foreign currencies does USD 1 buy. Therefore, a rate of 99 for the JPY means that USD 1 is equal to JPY 99. However, there are four major world currencies where the rate quote convention is the other way round - these are EUR, GBP, AUD and NZD. For these currencies, the FX quote implies how many US dollars can one unit of these currencies buy. So a quote of '1.1023' for the Euro means EUR 1 is equal to USD 1.1023 and not the other way round.

When calculating cross rates, it is important to pay attention to how the rates are quoted. This particular question is quoted in a very straightforward way because it specifies exactly what the rate means, eg by saying USD/AUD it clarifies that the rate is the number of USDs per AUD. If the question is not clear, remember how exchange rates are quoted - all are against 1 USD, except for EUR, GBP, AUD and NZD where it is the other way round.