# FX % Changes

OK maybe im going mad but ive just noticed in one of the ICAPM questions that in order to calculate a currencies % change in terms of another it makes a difference which is the domestic - concept checkers question 17 on page 295. Really obvious but soemthing I’ve never noticed thought about before. However, it seems that if you change the percentage caluclation when you flip you get matching results…HELP! E.g (simpler example) Day 1 Day2 GBPUSD = 1.25 GBPUSD = 2.0 USDGPB = 0.8 USDGBP = 0.5 => if we take GBP as the domestic currency 1.25 GBPUSD to 2.0 GBPUSD = (2.0 - 1.25) / 1.25 = 60% appreciation => if we take USD as the domestic currency 0.8 USDGBP to 0.5 USDGBP = (0.8 - 0.5) / 0.8 = 37.5 % depreciation BUT if you work out the % change using the new level (0.8 - 0.5) / 0.5 = 60% Is this just a coincidence?? I cant seem to find anything on the web confirming this for me. Does anyone know how this is actulaly calculated in the markets? What is the convention? Also, what do they take as the daily reference?

Let me give it a try. The pound appreciated by 60% which is same as the dollar depreciating by 37.5%. These are two different things, since appreciation is unlimited, but depreciation is limited by negative 100%. It’s possible that one currency rises by 900%, while the other drops only by 90%. They don’t have to agree, they are different instruments.

Yes that makes sense thanks very much. But does anyone know what the market convention is? One of the traders in my office has told me that they might use log changes ?? Also what do they take as the reference price…?

As 50% decrease followed by 50% increase in a share price will only make it 75% of the original price

algo-rhythm Wrote: ------------------------------------------------------- > Yes that makes sense thanks very much. But does > anyone know what the market convention is? One of > the traders in my office has told me that they > might use log changes ?? Also what do they take > as the reference price…? The market convention is that when you trade currencies you don’t work out % gains and losses like that because you are trading derivatives. It’s about margin and risk, not % moves.

Well the spot is quoted on Reuters and Bloomi in % terms as well…and CFA ask questions about it Like the one I just came across in SS18 asking you to calculate it. There must be a rule about what time of day the reference rate is set. This is also needed for caculating dervatives aswell if i am not mistaken.