TradeBaron

[TradeBaron]

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It took me two hours when I was studying l1 to figure this out 🙂

[TradeBaron]

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@Christine with reference to the above I was hoping you could help me out, I’ve noticed (to my dismay) that so far the CFA have used the convention Price/Base, however in FX markets it is in fact Base/Price – fully understood – despite spending a couple of hours going nuts about it.

In the in the CFA textbooks the equation for CIRP and such linked equations state the notation is Foreign/Domestic = P/B now I understand that:

“A direct currency quote takes the domestic country as the price currency and the foreign country as base currency”
“An indirect currency quote takes the foreign country as the price currency and domestic country as the base currency”

So basically what I’m reading is that Price/Base = Domestic/Foreign (Direct Quote) and Price/Base = Foreign/Direct (Indirect Quote) the order Price/Base (A/B) do not change direction (unless in forex markets) and everything else to the right of the equation does? So when the CFAI is using CIRP it’s using the “indirect method” If this isn’t the case then the CFA textbooks appear to be wrong (hopefully not) as I see Domestic/Foreign quoted in CIRP equations elsewhere. In a nutshell is it the case that Price(A)/Base(B) – do not ever move format and Foreign/Domestic do move depending on the direct or indirect exchange rate?

Thanks!!!

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