# 2022 Boston Mock B - Q8 - Fixed Income - FX Returns

Karen Cook manages USD-denominated bond portfolios for BDK. Cook expects a downward parallel shift of 50 bps over the next year in the US yield curve and anticipates that the EUR will appreciate against the USD by 0.75%

Qn: B. Calculate the expected total return for German investors for each of the portfolios in Exhibit 2, using Cook’s outlook for interest rates.

Answer: Bullet Portfolio = 4.83% = 1.80% + 2.27% + 0.75%

EUR Investor with USD Bonds and EUR appreciates - I thought this mean USD Depreciates - Hence
it should be 1.80% + 2.27% - 0.75%

What am I missing here?

Is EUR the home currency for this investor?

Yes - qn clearly states “German Investor”

“ B. Calculate the expected total return for German investors for each of the portfolios in Exhibit 2, using Cook’s outlook for interest rates.”

Then you’re correct: the USD is depreciating, which lowers their return in EUR.

I have the same problem with this exam question, EUR appreciates, therefore USD depreciates. If my investment is in USD then I have lost not gained!!! WHAT IS GOING ON?

Error.