Quote Basis in FX examples

CFA Level II Economics
#1

I’m looking at page 527 in the CFA book 1 material, although it seems to be a widespread issue.

Generally I understand FX rates to be quoted as CCY1/CCY2 which reads as “Currency 2 per Currency 1”, then there are some exceptions (for NDFs) where its 1 per 2.

i.e. go to your favorite FX site and you’ll see quotes such as

USD/JPY 104.8

GBP/JPY 172.5

GBP/USD 1.65

In the CFA texts these are all reversed i.e. JPY/USD 81.3 etc ( this is confusing again since in asia this quote might be right since they multiply by 100 - so its dollars per 100yen in effect).

I guess my question is do we just guess the quotebasis based on the rates? and hope there is no CHF/USD type rates where the value is around parity?

There’s the right way, the wrong way and the CFA way afterall.

#2

I agree that it would be nice if CFA Institute and FX sites used the same convention, but I prefer CFA Institute’s notation. That’s what you need to use for the exam; at least they’re consistent: they always use the same notation.

I wrote up a brief article on this stuff: http://financialexamhelp123.com/currency-exchange-rates/. Maybe it’ll be helpful.

#3

Thanks for you input, I get what your saying, assume CCY1perCCY2 for the exam. But in the real world its 2 per 1 for all but NDFs. And thats everywhere, not just FX sites.

#4

I know. But it’s CFA Institute’s exam, so you have to do it their way. Alas.