Worked guide · FX risk
How much exchange-rate movement erases a higher deposit rate?
A higher annual rate only answers how the deposit grows in its own currency. The break-even exchange rate answers a different question: at what maturity quote do the two deposits finish with the same value in the currency you started with?
Start with comparable terms
Use the same starting amount and, for a like-for-like comparison, the same term. Record the actual rate available to you rather than relying on a promotional headline or a reference value. If terms differ, compare the dated cash flows separately; the calculator flags that the result spans different time horizons.
Worked example: CNY and USD for 12 months
Assume CNY 100,000 can earn 1.50% simple interest for 12 months. The alternative converts at 7.20 CNY per USD and earns 4.00% simple interest for the same term. Ignore taxes, fees and conversion adjustments for this first calculation.
| Step | Calculation | Estimated amount |
|---|---|---|
| Keep CNY | 100,000 × (1 + 1.50% × 12 ÷ 12) | CNY 101,500.00 |
| Convert principal | 100,000 ÷ 7.20 | USD 13,888.89 |
| Grow USD deposit | 13,888.89 × (1 + 4.00% × 12 ÷ 12) | USD 14,444.44 |
| Convert back at 7.20 | 14,444.44 × 7.20 | CNY 104,000.00 |
At the unchanged quote, the comparison path is about CNY 2,500 higher. The break-even quote is CNY 101,500 ÷ USD 14,444.44, or approximately 7.0269 CNY per USD.
Three maturity scenarios
| Maturity quote | USD path converted to CNY | Difference vs CNY 101,500 | Reading |
|---|---|---|---|
| 7.00 CNY/USD | CNY 101,111.11 | −CNY 388.89 | Below break-even |
| 7.0269 CNY/USD | About CNY 101,500 | About CNY 0 | Break-even |
| 7.20 CNY/USD | CNY 104,000.00 | +CNY 2,500.00 | Above break-even |
| 7.40 CNY/USD | CNY 106,888.89 | +CNY 5,388.89 | Above break-even |
For the quote “CNY per USD,” a lower number means each USD converts back to fewer CNY. If you switch the calculator to the inverse quote, the same break-even point is shown as approximately 0.14231 USD per CNY, and the direction of the explanation reverses.
What changes the threshold?
- The starting deposit rate: a larger base-currency maturity amount raises the quote needed for the comparison deposit to catch up.
- The comparison deposit rate: a larger maturity balance in the comparison currency lowers the break-even quote.
- The term: more months change each interest amount; if the terms are unequal, the result compares different time horizons.
- Conversion costs: an adverse exit quote or a fee lowers the amount converted back. The calculator's optional adjustment is a single maturity-quote haircut; it is not a full two-quote transaction model.
Reproduce the example
- Open the DepositFX calculator.
- Set CNY 100,000, 1.50%, 12 months; compare USD at 4.00% for 12 months.
- Enter 7.20 CNY per USD and leave the maturity adjustment blank.
- Compare the result and threshold with the arithmetic above. A difference can occur if the automatic reference FX rate is still selected, so enter 7.20 manually for this reproduction.
For the formula and accepted input rules, read the calculation method. For bank bid/ask rates and conversion fees, see the exchange-cost guide.