Mock Exam - Currency Pair

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nngtu

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Hi, I just did the CFAI Mock Exam and encountered this question. It’s bugging me that the way they “read” the currency pair is totally adverse to what I have learnt. So I would need some help to ensure that my knowledge is correct or if it is something that I’m missing. ( I’ve checked currency exchange on google and I shown that I am correct)
[question removed by admin]
MY ANSWER WAS B - 7,761. The rationale behind my answer is that I read the NZD/SGD as: NZD = commodity currency, SGD = term currency and apply the calculation (which means 1 NZD = 0.9664 SGD). However, according to CFAI, it was…

Incorrect.
The NZD/SGD cross-rate is NZD/USD × USD/SGD = 0.7670 × 1.2600 = 0.9664.
The traveler will receive: NZD0.9664 per SGD; NZD0.9664 × SGD7,500 = NZD7,248.
Please leave your thoughts, thank you!
 
I think the answer should be B) 7761
1 USD=1.26 SGD
and 1 NZD = 0.7670 USD
so 7500 SGD = 7500 / 1.26 SGD = 7500 / (1.26 * 0.7670) NZD
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Or the way you did it too would work.
also it was 0.9664 NZD PER SGD
you have 7500 SGD -> so you get 7500 / 0.9664 NZD = 7761 NZD

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The curriculum has changed in the way currency pairs are read and interpreted. X P/B pair (Price / Base) would mean that 1 Price = X Base
 
i would read it 1.26 USD/SGD i.e. 1 SGD = 1.26 USD
so when you read 0.9664 NZD/SGD –> 1 SGD = 0.9664 NZD
and you have 7,500 SGD so you end up with 7,248 NZD. i’m pretty sure that’s how the CFA book solves it
cpk123 reversed the currency read to end up with 7,761 NZD
So what’s the correct answer nngtu?
 
cpk123 wrote:
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The curriculum has changed in the way currency pairs are read and interpreted. X P/B pair (Price / Base) would mean that 1 Price = X Base
Click to expand...
I doubt this. Not sure about what they have changed in the curriculum for level 1 but in the latest level 2 curriculum it says ” … a USD/EUR rate of 1.3650 means the euro, the base currency, costs 1.3650 USD….” . I read it as X Price = 1 Base.
 
Looks like the OP did the mock online (not paper-based). A technical error when coding the answer keys ???
 
If the question is asking for NZD/SGD, which it appears it is, the answer is 7,248.
I don’t think the OP is having problems with calculations, but rather he expected the question to be looking for SGD/NZD.
The way I read the currency pairs are ” this/that = get this FOR 1 OF that”.
The ‘get this’ is NZD, it’s what the question is asking for the answer in. So put NZD first. SGD is the ‘that’, and what we are exchanging. this/that = 0.9664NZD/SGD.
 
Hi guys, well, first of all, the answer CFAI provided is C - 7,248
I have tried to gather some information and this is what I found,
Apparently, there is something called “direct” and “indirect” quoting which result in different interpretation of the quote. For example: the same quote USD/SGD = 1.2 would be “perceived” differently by a Singaporean investor and USA investor. One would read 1 USD = 1.2 SGD and the other: 1 SGD = 1.2 USD (i don’t know which is which). I think this is where the problem occurs. However, I don’t think I fully have a grasp of this.
Regarding this, could anyone please further explain? And if someone can confirm which convention is CFAI using (always X this/that as X this for 1 that - as you guys have mentioned above OR if the “direct/indirect” thing is applicable and I have to look out for the nationality of the investor)
P/S: I’m sorry I’m sure these info will be available some where in the Curriculum but unfortunately it is not available for me to selfcheck :(
 
nngtu wrote:
Hi guys, well, first of all, the answer CFAI provided is C - 7,248
I have tried to gather some information and this is what I found,
Apparently, there is something called “direct” and “indirect” quoting which result in different interpretation of the quote. For example: the same quote USD/SGD = 1.2 would be “perceived” differently by a Singaporean investor and USA investor. One would read 1 USD = 1.2 SGD and the other: 1 SGD = 1.2 USD (i don’t know which is which). I think this is where the problem occurs. However, I don’t think I fully have a grasp of this. This isn’t right. If the quote is 1.2 USD/SGD, then 1.2 USD = 1 SGD. The equivalent is that 1 USD = (1/1.2) SGD.
Regarding this, could anyone please further explain? And if someone can confirm which convention is CFAI using (always X this/that as X this for 1 that - as you guys have mentioned above OR if the “direct/indirect” thing is applicable and I have to look out for the nationality of the investor)
P/S: I’m sorry I’m sure these info will be available some where in the Curriculum but unfortunately it is not available for me to selfcheck :(
Click to expand...
A direct quote is the price of one unit of foreign currency in terms of the domestic currency.
For example 1.35 USD/EUR is a direct quote for those dealing in the USD, because it tells the price of 1 Euro in terms of USD (you can directly see how many USD it costs to buy 1 Euro). This (direct/indirect) idea is associated with the numerator being the domestic currency and the denominator being the foreign currency. The play on the word directly is to help in remembering the idea– I don’t know if it actually played a role in the terminology development, but it makes sense.
On the flip side, 1.35 USD/EUR is an indirect quote for those dealing in Euro. It tells them the price of one unit of domestic currency in terms of the foreing currency. If they want to buy 1 USD, they must give out (1/1.35) Euro. The price of the foreign currency (USD) can be seen indirectly from the quote.
Bottom line, just remeber it is a ratio. If they say 1.05 CHF to the CAD, remember it is (1.05 CHF)/(1CAD). For one CAD, there needs to be 1.05 CHF.
Also, these numbers are probably all made up (for my example), don’t look into them too much.
 
Hi guys,
Just to give a more practical spin to the previous answer.
Whilst what has been described by tickersu may be correct, whenever a trader gives me a price of (say) 1.5 for X/Y pair, that means, I need 1.5 Y’s to buy 1 X. In EUR/USD terms, no one would ever quote it anything other than 1.24. Even if you want to go short EUR/USD, you woouldn’t quote it in USD/EUR terms - not in the real trading world atleast.:)
Whenever in doubt think how Yen is quoted on bloomberg terminals or in newspapers - it’s printed as USDJPY - that’s around 118 these days. Clearly Japanese Yen is worth less these days so it means you need 118 Yen to buy 1 USD. Apply that analagy to all quotes.
Cheers and I hope this was of some use!
 
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