标题: Currency return on foreign investments [打印本页] 作者: Muddahudda 时间: 2011-7-13 16:34 标题: Currency return on foreign investments
I'm confused by the formula for finding the domestic return on a foreign asset. When do we use the two different formulas? The only difference is the "1" in the last part of the equation:
a.) Domestic return = Return in Lc + Return FX + (Return FX * Return in LC)
b.) Domestic return = Return in Lc + Return FX + [(Return FX)*(1 + Return Lc)]
Example to show how the two formulas in the curriculum create different answers:
Investment returns +10% in Local terms during period
FX appreciates by 5%
What is the return in domestic returns on the foreign investment?
Answers:
Using formula a.) .10 + .05 + (.05*.10) = 15.5%
Using formula b.) .10 + .05 + [(.05)*(1+.10)] = 20.50%
Can anyone clear up when we would use the "1" in the last part of the equation, and when we wouldn't use it? I've seen both of these used and am not sure when one is more appropriate than the other.作者: Windjam 时间: 2011-7-13 16:34
formula a is what is used and over a period of time the cross product approaches zero.
can you give an example of formula b being used in the book .. what section作者: former 时间: 2011-7-13 16:34
