Common pre-processing steps for forex data

External question — Quantitative Finance Stack Exchange Author: Taylor Original post: https://quant.stackexchange.com/questions/29873 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. This is almost certainly going to make me seem like a novice, but googling for answers is very difficult for this sort of thing. My friend asked me to take a look at some forex data recently. My instincts for vector-valued time series are to plot some pictures and try models. If I have to pre-process the data, I generally know what's acceptable. This is my question: is it more interpretable to convert everything into the base currency? Is this commonly done? Say we have four countries: A,B, C and D, and I'm from country C. Say we have available at some time $(\frac{A}{D}, \frac{A}{C},\frac{B}{C})$. Instead of modelling $(\frac{A}{D}, \frac{A}{C},\frac{B}{C})$ directly shouldn't we model $(\frac{A}{C},\frac{B}{C},\frac{D}{C})$? Here $\frac{D}{C} = \frac{A}{C}/\frac{A}{D}$. Now everything is in the same units, and this also facilitates profit calculations. Or does all of this depend on the models I'm using? Is it more common to model these levels, or their changes? Or maybe even their returns?