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A cross-rate is needed when:
ABoth currencies are pegged to the same base
BA customer prefers a derivative-based hedge (within the standard regulatory framework)
CSpot and forward differ by more than 1%
DBank's local market does not directly quote a currency pair
Answer & Solution
Correct answer: D. Bank's local market does not directly quote a currency pair
1. Identify what the question asks: this concept maps to crossrate (§5.4).
2. Apply the framework or formula relevant to the topic.
3. Eliminate distractors and arrive at the correct option (D).
_Source: ICAI BoS CA Final Paper 2, Ch 10 "Foreign Exchange Exposure and Risk Management"_
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