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Simple currency return question

I just got confused with one of the solutions from schweser. Following is the question.

An EU investor has invested in Japanese stocks. Following are the stats.

Return in yen terms - 12%
Yen has appreciated by 5% relative to EUR
Calculate the return on stock in EUR terms?

I understand this is a very trivial question, but belive there is some problem with schweser answer, so wanted to check.

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(1+12%)*(1+5%)-1=17.6%

Is the return in Yen terms -12%?

Got it, was confused with the effect of appreciation of yen (+/-). Believe need some rest.

Thanks.

u lose 12 in yen, than gain 5 on currency, so total of 7% lost (-7%)

The answer that I got was 6.4%

I thought that if Yen appreciates, the French investor loses.

What is the correct answer and explanation.

Also, is the return in yen terms -12% or +12%?

-12% + 5% + 5%(-12%)= -8%

sorry, excel rounded: -7.60%. this would be the domestic (euro) return

I think Krochellis right, forgot to include the fx return on the loss.

K-rock got it right : )

KRochelli Wrote:
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> -12% + 5% + 5%(-12%)= -8%

Yep, or (for me it’s more intuitive):

1-[(1-0.12)*(1+.05)] = 0.076

#FreeCVM #FreeTurd #2007-2017

yo philly- k-rock is actually my nickname. nice!

PhillyBanker Wrote:
——————————————————-
> K-rock got it right : )

Nope. Maraticus got it right.

(The return is 12%, not -12% >> from Schweser Vol 2 1AM)

Rdc = Rfc + S + (S)*(Rfc)

0.12 + 0.05 + (0.05)*(0.12) = 17.6%

How is that possible McLeod?

The return in Yen terms is -12%.

Please explain the logic.

OP transcribed the question incorrectly (This is question #5 on the Exam 1 AM Session Schweser Practice Exams vol 2). He probably meant “Return in yen terms = 12% “.

But if the return in Yen terms was in fact -12%, K-rock would be right.

Ahhh, ok.

K-rock - it just flows, I hereby pronounce K rock to be your new AF handle : )

Sorry for the confusion, as McLeod pointed out, I meant “Return in yen terms = 12%”.