Question about exchange rate explaination

CFA Level I Quant
#1

Hello

the answer state “Previously it cost $1.774 CAD to buy 1 USD; it is expected to cost $1.721 CAD to buy 1 USD in 1 year so the CAD has appreciated by 2.99%”

does the answer wrong? The CAD should be the base currency, the answer should be 3.08%. Is the answer wrong or I am wrong?

Thanks

#2

1.774 CAD/USD and expectation is 1.721 CAD/USD so to calculate how much the CAD appreciated:

1/1.774 = 0.564 and expecation is 1/1.721 0.581.

0.581/0.564 = (1.0301 -1) *100 = 3.01% so im assuming that im a bit off due to rounding

#3

thanks for replye. I thing the answer use (1.1721-1.1774)/1.1774 to get 2.99%. That’s why I think the answer is wrong.

#4

If the price of a barrel of crude oil increases from USD39.50 to USD40.25, you’d say that crude oil has appreciated (vis-à-vis the USD) by:

(40.25 − 39.50) / 39.50 = 1.899%

Thus, to compute the appreciation/depreciation of crude oil, you compare the number of currency units (before and after) per one unit of crude oil.

It works thus with currencies as well.

To compute the appreciation/depreciation of CAD , you compare the number of USD (before and after) _ per one unit of CAD _. The former price for CAD1.0 was USD(1/1.774) = USD0.5637. The latter price for CAD1.0 is USD(1/1.721) = USD0.5811. CAD has appreciated (vis-à-vis the USD) by:

(0.5811 – 0.5637) / 0.5637 = 3.080%

#5

Thanks so much

#6

My pleasure.