Am abit confused with the question below.
The solution says (According Kaplan Schweser 2014 Qbanks), “CAD has appreciated by 4.0%, and the JPY has depreciated by 3.8%”.
The Canadian dollar (CAD) exchange rate with the Japanese yen (JPY) changes from JPY/CAD 75 to JPY/CAD 78. CAD has:
a. depreciated by 3.8%, and the JPY has depreciated by 4.0%
b. appreciated by 3.8%, and the JPY has depreciated by 4.0%
c. appreciated by 4.0%, and the JPY has depreciated by 3.8%
When you get a quote such as JPY/CAD 75 (meaning JPY75 = CAD1.0), you can save yourself a lot of headaches if you think of the base currency – CAD in this case – as if it were a commodity (which, in fact it is): oil, say.
If you think of CAD as oil, then the price of oil has gone from JPY75 to JPY78: oil has appreciated (increased in price).
When you invert the quotes – CAD/JPY 0.0133 and CAD/JPY 0.0128, respectively – then you see that the price of JPY (the commodity in these quotes: the oil) has decreased in price, from CAD0.0133 to CAD0.0128.
I cover this in the article I wrote on currency exchange rates: http://financialexamhelp123.com/currency-exchange-rates/.
Many Thanks S2000.
Reading your article now.
Sometimes the question will be posed differently. When the question says “relative” you are talking about the currency on the left hand side. So in the context of this question: “Relative to the JPY the CAD has appreciated 4%”