Can you clear up the confusion I have bout this formula?

where, return, foreign, domestic, confusion

Two formulas for domestic return on a foreign portfolio:

1) Return=Capital Gain + Currency Appreciation + (Capital Gain)(Currency Appreciation)
2) Return=Capital Gain + Income Yield +Currency Effect,
where Currency Effect=e*(1+Capital Gain+Income Yield).

When do I use 1) or 2)?

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Windjammer

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发表于 2011-7-13 13:31 | 只看该作者

Sorry I don't understand desperatestudent. What do you mean?

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canadiananalyst

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发表于 2011-7-13 13:31 | 只看该作者

i thought they are both the same except 1 assumes no recurring income (i.e rental income) but only capital gain whereas 2 assumes there are income and capital appreciation. Note the currency effect affect income and capital gain components.

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zwjy

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发表于 2011-7-13 13:31 | 只看该作者

equation 1 = fully hedged...
equation 2 = only the principal is hedged

equation rarely happens unless they specifically tell you.

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Can you clear up the confusion I have bout this formula?

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