Price currency
The currency in which an exchange rate is stated: the number of its units needed to buy one unit of the base currency. A currency forward's mark-to-market value is also in it.
Where you will meet it
Price currency appears in 7 learning outcomes on the CFA syllabus. A few of them:
- Tell real exchange rates apart from nominal ones and find the percentage move in a currency
“To find the price currency's change, invert the quote first: if USD/EUR rises from 1.25 to 1.30 the euro gains 4.00% but the dollar loses 3.85%.”
- For a spot or forward currency quote, work out and explain its bid–offer spread and say what makes that spread wider or narrower
“A dealer quotes two prices for one unit of the base currency, both in the price currency: the bid, at which the dealer buys the base currency, and the offer, at which it sells.”
- Read and explain quotes for spot and forward exchange rates
“An exchange rate quote has a base currency and a price currency, and the convention is price/base: USD/EUR at 1.10 means one euro costs 1.10 dollars.”
- Work out cross-rates between currencies and explain what they mean
“Quotes follow the price currency/base currency convention, so USD/EUR = 1.08 means 1.08 dollars per euro.”
See also
Practise it
Practise price currency until it is automatic: questions that explain every wrong option.
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