Is the preferred method for calculating the currency contribution to use the change in the exchange rate, or find the difference between the local return on the investment and the return in the base currency. I ask this because in the CFAI Books, Volume 6, Reading 47, Practice problem 2, each method produces a different result. CFAI uses the latter (difference between returns) in their answer, yet the text says to calculate it using the exchange rate difference. Thanks.

I have read the chapter but I have not done the EOC. Did you use add the cross exchange? Personally, I will not go through the hassles of calculating it using the change in exchange rate (except if I had no other choice). The formula, using only the market return contribution: C = s*(1+r).

me.tega - Calculating global returns REQUIRES an a currency component which REQUIRES an exchange rate component. The formula you listed is a simple return over time - it does not address any of the components needed to compute the global equity return. FYI: The market return contribution is actually: Sum of [w(j,p) * R(j,l)] or one step further: Market Allocation Contribution: Sum of [w(j,p) - w(j,b)] * R(j,b,l)

jdane416 Wrote: ------------------------------------------------------- > me.tega - > > Calculating global returns REQUIRES an a currency > component which REQUIRES an exchange rate > component. The formula you listed is a simple > return over time - it does not address any of the > components needed to compute the global equity > return. > > FYI: The market return contribution is actually: > Sum of > > or one step further: > > Market Allocation Contribution: Sum of * R(j,b,l) That formula is found in SS17 I think the cfai is more interested in the currency return calculations outlined in SS7. I think the formula you are looking for is; return asset in foreign currency%+%in foreign currency + those two % multipled by each other. Using that formula you can solve for the various components algebriacly(SP)