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Write an actual unit sentence
The fictional quote 7.8 domestic units per one foreign unit values 10 foreign units at 78 domestic units. If the quote falls to 7.41, the same 10 foreign units convert to 74.1. The foreign currency has lost 5% measured in domestic units.
Reverse the quote carefully
The reciprocal quote is foreign units per one domestic unit. Reversing a quote requires an inverse, not merely moving a minus sign. A 10% rise in one direction corresponds to a 9.090909% fall in the reciprocal direction.
| Display | Meaning of a rise |
|---|---|
| Domestic / foreign | Foreign unit buys more domestic units |
| Foreign / domestic | Domestic unit buys more foreign units |
Combine the correct currency factor with the asset
A foreign asset’s local growth factor multiplies the domestic-per-foreign quote ratio. Using the reciprocal ratio without changing the formula reverses the currency effect. Check converted starting and ending wealth to verify the result.
Keep the conversion model bounded
These are fictional point quotes. Real conversion can involve bid/offer spreads, settlement timing and costs. A spot quote ratio alone does not represent a hedged return or an executable broker price.