Measure a change on stated grounds

For a fixed net foreign receipt Q and exchange rate S measured as home units per foreign unit, its home amount is Q × S. Holding Q fixed, the change is Q × (S1 − S0). Reverse the direction for a net payment. Write the quotation convention next to the calculation: using foreign units per home unit would require division and changes the numerical sensitivity. Distinguish a valuation translation rate from the executable buying or selling price, spread and charges needed for an actual conversion.

When volume also changes, calculate the whole amount in each case: Q1 × S1 − Q0 × S0. One exact explanation of that difference is Q0 × (S1 − S0) + S0 × (Q1 − Q0) + (Q1 − Q0) × (S1 − S0). The last term is the interaction. Omitting it can matter for a large combined move. This decomposition explains the result; it does not establish which scenario or probability is credible. The operating forecast must supply the quantity response.

For a simple floating payment with principal N, annual rate r and applicable year fraction a, interest is N × r × a. Apply a rate change only to the principal and periods it can actually reset. If the reference is averaged or compounded, if principal amortizes, or if a floor binds, use that payment rule rather than multiply all debt by one annual shock. Net interest sensitivity can be calculated with similarly exposed deposits, but the cash uses and access constraints of those deposits still matter.

For market value, a sensitivity such as duration or an option’s delta describes a local response under its stated model and units. Use FIN.5/7/8’s qualified valuation when a new value is needed. A first-order estimate is useful for screening small changes; it can fail near an exercise threshold, over a large move or when several factors change together. Revalue the actual position in those cases. The market value of a guarantee is also different from the amount the guarantor may have to pay in a specified event.

Make the direction and units legible before presenting a total. A one-percentage-point rate rise is 0.01 in the interest formula. A sensitivity quoted per basis point uses 0.0001. A home-currency value change and an amount of foreign currency to deliver cannot be added until the receiving measure and conversion basis make that addition meaningful.