To calculate currency contribution why can’t we simply do this -:
Beginning Exchange Rate = R1
Ending Exchange Rate = R2
Currency Contribution = (R2-R1) / R1
Using this more direct approach I get the following as currency contributions in Practice Problems 1 and 2.
1. 0.6/6 = 10% (book says 13%)
2. Yen 5/100 = 5% (book says 5.24%)
Euro .0204/1 = 2.04% (matches text)
What am I doing wrong. Even if I convert the currencies to direct rates instead of indirect I get a discrepancy with the text. AAARGHHHH!!!!作者: strikethree 时间: 2013-4-8 10:01
The direct approach is wrong.
Gain in the Local Currency - Gain in Foreign currency = Currency Contrib.
1. Here you are SKR Investor. So,
you need to do Skr Return of Stock - $ Return of Same stock - to find the Currency contrib.
SKR Return = (702-600)/600 = 17%
$ Return = [(702/5.4)-(600/6)]/(600/6) = 30%
so Currency Contrib = 17% - 30% = -13%
Problem 2: You are a US Investor. You need to do
USD Return of Japanese Stocks - Yen Return on Japanese Stocks
USD Return on Japanese Shares = (20952-20000)/20000 = 4.76%
Yen Return on Jap Stocks = (2200-2000)/2000 = 10%
so Currency Contrib of jap stocks = 4.76 - 10 = -5.24%
