Can you clear up the confusion I have bout this formula? where, return, foreign, domestic, confusion

Viceroy

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)?

Windjammer

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

canadiananalyst

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.

zwjy

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

equation rarely happens unless they specifically tell you.