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CFA Level I · CFA Level I Exam · Exchange Rate Calculations

A US investor holds a bond worth MXN 2,000,000 when USD/MXN (MXN per 1 USD) is 20.00. At year-end the bond is still worth MXN 2,000,000, and USD/MXN is 25.00. The change in the investor's USD value of the holding is closest to:

The holding lost 20.0% of its USD value. The peso depreciated from 20 to 25 per dollar, so the holding fell from USD 100,000 to USD 80,000, which is the inverse ratio 20/25 - 1 = -20.0%.

  1. A-20.0%Correct
  2. B-5.0%
  3. C+25.0%

Explanation

The initial value is 2,000,000/20 = USD 100,000. The final value is 2,000,000/25 = USD 80,000. The change is -20.0%. The option of +25.0% mistakenly takes the change in the USD/MXN quote, and -5.0% uses the absolute quote change.

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