Q21 asks ex-post dollar return on a one-year U.K bond, and the answer says Rus = Ruk + s + s × Ruk, what is s × Ruk? I found the formula on CFAI textbook P488, and it says this portion is very small so we can apporximate by using R = Rfc + s. Can we do that on exam?
I think it’s better to stick with Rus = Ruk + s + s × Ruk.
Honestly, I just convert money into GBP, add the interest and convert back at the new rate. Gives me the right answer every time and I don’t need to remember any equations.
i like that, thanks grumble. But can you explaine where does s*Ruk come from? The first portion of return is interest rate on UK bonds, second portion is how much has GBP appreciate against USD, what’s the third one?
Grumble: That is genius.
any thoughts?