CFA CFA Level 1 CFAI currency quotation confusion – foreign vs domestic currency

CFAI currency quotation confusion – foreign vs domestic currency

  • This topic has 3 replies, 3 voices, and was last updated Apr-20 by fp92.
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    • fp92
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      Hi all, hope studies are going well. I’m stuck at the currency convention as I’m confused as hell and make mistakes in the practice papers, hope someone can help!

      • For example, from the internet, I learned that EUR/USD of 1.2 means 1 EUR = USD 1.2. But in CFA questions the meaning seems to be the other way round? i.e. EUR 1.2 = 1 USD.
      • Then I came across EUR:USD which seems to imply it is USD 1.2 per 1 EUR. * tears hair out *

      Can anyone shed some light on this and help me PLEASE?

    • janpeter
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      There is just a question on this here: https://forum.300hours.com/discussion/3567/question-of-the-week-level-1-macroeconomics#latest

      The way I see it is EUR/USD = 1.2 means that “EUR is 1.2 times more than USD”, or “1 EUR divided by 1 USD will be 1.2 or 120%”.

    • Sophie Macon
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      Hi @fp92, I was in your same exact situation about this during my L1 days. 

      All your statements are correct. Let me attempt to clarify:

      1. In the real world (NOT CFA curriculum), EUR/USD of 1.2 means 1 EUR = USD 1.2
      2. However, in CFA curriculum, EUR/USD = 1.2 is read as EUR 1.2 per USD 1. Just remember that CFA convention is opposite from ‘rest of the world’.
      3. For the purposes of the CFA curriculum, you should also be familiar with the convention of EUR:USD = 1.2, which means USD 1.2 = EUR 1, i.e. equals USD/EUR = 1.2. 

      Statement 3 above is important from an exam perspective. It’s important to note that the use of colon (:) is directionally opposite to using a slash (/), i.e. EUR:USD = USD/EUR in CFAI curriculum. In this case, USD is the numerator, EUR is the denominator. 
       
      Hope this helps

    • fp92
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      Thanks SO much @Sophie, it’s crystal clear. No more currency mistakes of this sort hopefully down the road  🙂

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