Foreign Exchange Rates???? (what is going on)??

CFA Level I
#1

All right, so I work as a foreign exchange analyst at an investment bank, and yet, I am getting these questions wrong on the schweser mock exams and I literally have no idea how I am getting these wrong.

I know for a fact that an exchange rate (for example: 1.5 GBP/USD) implies that it takes 1.5 USD to equal 1 GBP (my banks functional currency is GBP for sh**sake so I know this is the convention). I also know that if the rate goes from 1.5GBPUSD to 1.6GBPUSD, the USD has depreciated relative to the Pound. Do the CFA questions use a different quoting convention!? For the answers in this schweser mock exam to be what it says, they would have to look at the exchange rates as 1.5GBPUSD as 1.5 GBP equals 1 USD which is entirely wrong wrong wrong.

Can someone please help? Am I going to need to remember an incorrect convention?

#2

And noticing that CFA does use an incorrect quoting method, my other question is will there ever be a situation where they will use a real word quoting convention and I have to read carefully to know when to read an exchange rate the CFA way vs the real world way?

#3

I wrote an article on exchange rates that may be of some help here: http://financialexamhelp123.com/currency-exchange-rates/

The short answer is that CFA Institute’s notation is backwards from the notation to which you’re accustomed.

Too bad: you have to use their notation.

#4

darn, very frustrating but there’s nothing I can do about it so thanks for the headsup.

#5

My pleasure.

#6

OP, don’t blame you at all for the frustration here. This notation style is one of the more confusing CFAI conventions to get used to.

Can vouch for s2000’s article. Very well written and I haven’t got a single exchange rate question wrong since using the “long hand” method detailed therein. Don’t care if the underlying math is more simple; if writing out a formula gets the right answer here, I’m sticking to the method!