On a foreign investment the income is the difference between the purchase and redemption price after each has been converted to sterling on the day the transactions took place, so includes any foreign exchange gains.
Losses cannot be deducted.
Have a look at :
Deeply discounted securities
for more information.
If you invest in deeply discounted securities, put the difference between what you paid for the bond and what you redeem or sell it for in box 3 of SA101 (page Ai1).