Global Equity Return Decomposition - Calculating Currency Component currency, different, investment, difference

Iginla2010

Is the preferred method for calculating the currency contribution to use the change in the exchange rate, or find the difference between the local return on the investment and the return in the base currency.

I ask this because in the CFAI Books, Volume 6, Reading 47, Practice problem 2, each method produces a different result. CFAI uses the latter (difference between returns) in their answer, yet the text says to calculate it using the exchange rate difference.

Thanks.

skycfa

I have read the chapter but I have not done the EOC. Did you use add the cross exchange? Personally, I will not go through the hassles of calculating it using the change in exchange rate (except if I had no other choice). The formula, using only the market return contribution: C = s*(1+r).