article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors. Example for 100,000 EUR/GBP contract initially sold.6760 then bought (closed).6750:.6760 (selling price) -.6750 (purchase price).0010 positive pip difference 10 pip profit To further convert the above P/L to USD, use the above "Calculating Cross Rate Pip Value" as follows: 1 pip 100,000 (lot. Example for 100,000 EUR/GBP contract currently trading.6750, and EUR/USD currently trading.1840: 1 pip 100,000 (lot size).0001 (tick size).1840 (EUR/USD base") /.6750 (current rate) USD.54. A: Net present value (NPV) is a method of determining the current value of all future cash flows generated by a project after accounting for the initial capital investment. The Motley Fool has a disclosure policy. It is widely used in capital budgeting to establish which projects are likely to turn the greatest profit. Though the math may appear intimidating at first, calculating gains and losses in foreign exchange is as simple as converting one currency into another currency over and over again. The target rate of return.
The "quot; currency" is listed second. NPV is used in capital budgeting to compare projects based on their expected rates of return, required investment, and anticipated revenue over time. Since the cash inflows are uneven, the second formula listed above is used. The "base currency" is listed first. This holds true for such currencies as the EUR, GBP, NZD and the AUD. Formula, c_f C_s cdot fracleft ( 1 i_p cdot fracnN_p right )left ( 1 i_b cdot fracnN_b right ). Typically, projects with the highest NPV are pursued. Currencies, especially those of major world powers, tend to move very little from day to day and year to year.