Right this has been really bugging me, thought I’d come back to it and here I am still not really understanding it, it’s q 111 of Schewser 2 PM. They give you the real exchange rate of 1.41 and in the answers they use that convert it back to the nominal (which is fine) and then take the % difference between the nominal and add it to the stock return. However I don’t see why you have to do that. Real rate gives you a rate that’s not explained by inflation so why can’t you just take the inflation differential, the change in the real rate and the stock return and calculate it? Also why do they do it using the nominal rate? This is an area that really confuses me so really appreciate any and all help!
Anyone… CPK this sounds like one for ya!!