Cross-currency transactions

Cross-currency transaction: an exchange between two currencies that have no direct liquid market. Their rate is calculated through a third currency and is called a cross rate. The classic intermediary worldwide is the US dollar. In settlements with Russia, the yuan increasingly plays this role.

How a cross rate is calculated

A hypothetical example. A dollar costs 100 roubles, and a dollar buys 3.67 dirhams. Then a dirham costs 100 / 3.67, or about 27.25 roubles.

In practice, each of the two conversions comes with its own spread. That is why the client cross rate is usually worse than a calculation from the two benchmarks.

Where it comes up

• The contract is in dollars or euros, but the supplier is willing to receive yuan or dirhams.
• A direct exchange of roubles into the beneficiary’s currency is unavailable or expensive, so the roubles are exchanged through an intermediate currency.
• The agent settles with the beneficiary through a bank in a third country.

Risks

• A double markup: one at each step of the exchange.
• Movement of two rates between the quote and execution.
• A mismatch between the contract currency and the payment currency. For currency control, the amount in the contract currency must match the documents, and a change of payment currency must be provided for in the contract.

What to do

Ask how many conversions there are in the route and at what rate each one is calculated. Judge by the total: how many roubles were spent and how much currency the supplier received. Compare this total with the benchmark, and you will see the full FX markup.

In the payment order for a payment arranged by VEDmost, the final rate is written down before the roubles are debited, however many conversions there are within the route. To compare your rate: Compare your rate.