Return (Domestic CCY)

CFA Level III Derivatives
#1

I seemed to have answered this correctly 100 times now i am confused again.

If a USD investor holds a portfolio or German Assets, whats his R(DC) return if:
Foreign Asset Return = 3.6%
USD/EUR beg = 1.10
USD/EUR end = 1.14

I have the RFX as -3.63%, but the example says it’s +3.63%

my logic - US Investor is holding EUR Assets. initially 1 USD could be exchanged for 1.10 EUR’s, now 1 USD can be exchanged for 1.14 EUR’s. So USD appreciate, EUR depreciated. If I’m holding EUR assets and EUR depreciated, how is my FX return positive?

#3

I think you have your FX the wrong way round (CFA do it differently to other examiners/markets)
USD/EUR beg = 1.10
1 euro = 1.1 USD

USD/EUR beg = 1.14
1 euro = 1.4 USD

EUR stronger = 1.14/1.1 - 1 = +3.64%
USD weaker = 1.1/1.14 - 1 = -3.51%

1.1 USD into 1 eur0
1 euro grows to 1.036 eurs
coverted to 1.036 x 1.14 = 1.18104 USD
Return 1.18104 / 1.1 - 1 7.37% in USD

#4

thanks again Mikey. CFA does it differently just for USD/EUR?

#5

no all quotes are PRICE /BASE = VARIABLE /FIXED

#6

jeesus lol. somehow i just noticed that!