I came across this question on schweser Book 6 test (Q108, exam 2 afternoon session) Suppose, an investor holds a bond in foreign currency denomination, then how would foreign currency appreciation and asset appreciation help the domestic investor. I understand the foreign currency appreciation part, but asset appreciation is baffling me. What is this asset appreciation they are referring to ?? And how does this asset appreciation help the domestic bond holder ? Many Thanks !
asset appreciation refers to upward stock market trend
What it means to you when somebody say your home value appreciated 10% last year? US investor holding foreign investments in the foreign currency benefits when the foreign currrency appreciates. When you exchange your foreign currency investments to Dollars, you get more dolllars.
“Asset appreciation” in this case is appreciation of the bond in its nominal currency. Hence, if you have a yen denominated bond that a Japanese investor would say appreciated 5% then teh asset appreciation is 5%. A dollar-denominated investor would then add currency app/dep to that.
your return would be HPY computed in foreign currency * (1-depreciation in home currecncy relaitve to other currency) so effectively one will go up, and other will go down, assuming your capital appreciation rate is same as the currency depreciation rate. In this case you’d actually lose money!!!
is this a topic for L1? I was told that forex related things have been moved to L2. S
saurya_s Wrote: ------------------------------------------------------- > is this a topic for L1? I was told that forex > related things have been moved to L2. > S I knew the same. someone is using 2007 book 6. 
Thanks everyone. Strangedays - This is from 2008 Schweser Book 6.
For forex related stuff - I always remembered (not sure whether it is easy or not) - you always gain when the country, where you have invested, is gaining as compared to country you love. So for e.g. - 1. If you live in Country B & invest in Country A, then you will always gain – if Country A’s currency apprciates relative to Country B, Country A economy grows more than Country B, Country A’s investment appreicates more than Country B. thanks,
Kind of like what is happening to the dollar vs. Euro right now if you are in Europe and all these Europeans are coming over and buying up land in the US.
amberpower Wrote: ------------------------------------------------------- > Kind of like what is happening to the dollar vs. > Euro right now if you are in Europe and all these > Europeans are coming over and buying up land in > the US. Nice and cheap
No fun visiting London. Heck, it’s no fun going to Canada anymore! (used to be $1 USD - $1.50 CDN)
Canada’s lots of fun! It’s more fun to go to the US now from Canada I remember when it was around 1.60-1.70 per dollar…you guys just got spoiled
You can’t go wrong with a drinking age of 19 and a better exchange rate! LOL
Better Exchange rate? how?
I just meant when I was younger in the US I could take US$ and increase my holdings by 50% AND drink at 19. Bad choice of words I guess. Canada prices were a little bit more but it still seemed like a deal at the time.