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Accounting for currency fluctuations for Capital Gains


MattG

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Hi,

I'm trying to figure out how to account for currency fluctuations when calculating Capital Gains (CG) on a sale. It probably helps if I give an example.

Suppose I have £1,000 and I fund my account when the effective exchange rate to $ is 1.3. So I have $1,300 in my account.

I then buy 130 shares at $10 each.

At sale time, the shares are $20 each so I now have $2,600 in my account, but the current effective exchange rate is 1.2, so conceptually I have 2600/1.2 = £2,166. If I cash out then is my CG £1,166 or do I calculate it based on the rate at buy time and so only £1,000 gain?

Alternatively, suppose I leave the funds in $ until later and the rate drops to 1.1 and then I cash out, giving me a total of £2,363. is the gains now £1,363, £1,166 or £1,000.

(All the above ignore commission and other charges for simplicity)

I am sure this is solved problem, but I'm struggling to find the answers.

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1 hour ago, jlz said:

Thanks, a lot of useful info there, but I couldn't find anything explicitly relating to dealing with currency.

To complicate things further:

From a previous employer I had a bunch of options that I bought to hold on leaving. These shares are in $. If I sell them they get paid into my $ account and from there I can transfer them into my IG fund in $ too. As such the value stays in $ right until I should need to convert them back into £. I have no idea how to account for the cost at buy time compared to sell time in £, given fluctuations in £ <--> $ between the time I bought and when I might want to sell them in future.

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