If I’ve got this straight in the CFA text book currency pairs are quoted Price/Base and if the quote increases, it means the base currency has appreciated.
From my reading materials:
For example, suppose that the USD/GBP exchange rate is currently 1.5125. From this exchange rate quote we can infer that:
- The GBP is the base currency and USD is the price currency.
- 1 GBP will buy 1.5125 USD or 1 GBP costs 1.5125 USD.
- It will take 1.5125 USD to purchase 1 GBP.
- A decrease in the exchange rate (e.g., to 1.5120) means that 1 GBP will be able to purchase fewer USD.
- Alternatively, fewer USD will now be required to purchase 1 GBP (i.e., the cost of a GBP has fallen).
- This decrease in the exchange rate means that the GBP has depreciated (lost value) against the USD, or equivalently the USD has appreciated (gained value) against the GBP.
Forex sites don’t use this convention though. The EURO:USD has moved from 1.10 to 1.06 - so the dollar has strengthened relative to the Euro, which is exactly opposite of the CFA convention, unless I’m bloody confused.
How do I keep this straight in my head?
I NEVER EVER GET CURRENCY QUESTIONS RIGHT BECAUSE I DON’T KNOW WHICH CURRENCY IS APPRECIATING AND WHAT I’M BUYING AND SELLING. HELP!!!
CFA Institute’s convention for exchange rate quotations is the reverse of what you see on forex websites.
There’s nothing you or I can do about that.
Stop looking at those websites and focus exclusively on CFA Institute’s convention.
Take a look at this article I wrote on exchange rates; maybe it will be of some help: http://financialexamhelp123.com/currency-exchange-rates/
Why is the CFA Institute messing with our minds??? They’re probably sitting in their back offices LAUGHING at us.
(I wouldn’t look at forex sites if I didn’t need to from time to time for work.)
Objection: assumes facts not in evidence.
Bring a mirror to work when you need to look at such sites.
I hated that currency section, as much as i hated GIPS
Do you agree that they’re probably sitting in their offices laughing at us?
CFA Institute has employees whose sole job is to monitor Analyst Forum and broadcast threads such as this (with highlights) to all employees: every room has a big screen TV just for that purpose.
They maintain that it boosts morale.
Not sure what the confusion is.
i just looked at the solution to example 3, question 2. after thinking about it for 10 minutes I decided the authors have absolutely no idea what they are talking about.
a near/far swap with mid rate quoted on the near leg? dream on…