Two effects, one number
Suppose your base currency is KWD and you buy a US stock for USD 100 when one USD is worth 0.300 KWD (illustrative rates). Your cost is KWD 30.0. Later the stock is USD 110 and one USD is worth 0.310 KWD.
| Item | Calculation | Result |
|---|---|---|
| Price effect (local) | 110 / 100 − 1 | +10.0% |
| Currency effect | 0.310 / 0.300 − 1 | +3.3% |
| Value in KWD | 110 × 0.310 | KWD 34.1 |
| Total return in KWD | 34.1 / 30.0 − 1 | +13.7% |
The effects compound rather than add: 1.10 × 1.0333 = 1.1367. A report that only shows the KWD total hides whether the manager picked a good stock or simply held a currency that strengthened. Showing both lets you judge the decision and the exposure separately.
Choosing the right FX rate
- Cost: convert at the rate on the trade date, and keep that historical rate with the lot.
- Current value: convert at the latest rate, or at the rate for the report date.
- History: use the rate for each past date; gaps (weekends, holidays) need a stated rule, such as the last available rate.
- Pegged currencies: many Gulf currencies are managed against the dollar or a basket, so check each source carries them correctly.
Details that quietly break reports
- Decimals differ by currency (KWD, BHD and OMR use three decimals), so rounding in a single global format creates reconciliation breaks.
- Some markets quote in minor units (pence, for example), which must be normalised before valuation.
- Cash balances in each currency need the same FX treatment as securities.
Good practice. Keep every holding and every cash balance in its native currency, convert only for reporting, state the base currency on each report and let users see both the local and the base figure.
CapLens stores values natively, supports 17 currencies, refreshes FX daily and reports in a base currency of your choice. See the master data tour and the GCC solution.