nased on iRS regs 1.988-2
sold for E 950 @$.65
Under the general rules, T’s exchange loss is $50 ((€1,000 × $0.70) purchase price in US $ =$700 less the principal amount at the spot rate for date of sale (€1,000 × $0.65)). However, the overall economic loss on the sale is $82.50—the amount realized (€950 × $0.65, or $617.50) less the bond’s adjusted basis (€1,000 × $0.70, or $700). Thus, under the netting rule, T’s $82.50 overall economic loss consists of $50 ordinary exchange loss and a $32.50 market loss, which is capital in character; see Regs. Sec. 1.988-2(b)(9), Example (5)(ii).
now say sold for 950@$.40=$380, exchange loss $700 less 1000 *.4 = $400 exchange loss $300
economic loss $700-380 = $420 ordinary exchange loss 300 market/capital loss 120
