I cannot seem to grasp Gamma and specifically the question in the mock… Can anyone help?? anyone got a good example??? How is Gamma_FC and Gamma calculated Does the ICAPM equation use Gamma or Gamma_FC when multiplying times FCRP?? ahhh…
it is again a really tricky concept. all i know is the gamas used in icapm model is the gamas that regresses domestic return with change in foreign currency. ICAPM gama=gama_LC+1
Just curious which LOS in the ICAPM reading talks about ICAPM Gamma? I do not recall reading about ICAPM Gamma.
Y = local (US) currency exposure to it self lets say its 1 Yfc= foregin currency exposure it itself therefore if u invest in a foreign country your returns will have currency expesure of your own local exposure plus the foreign countrys exposure i.e Y= Yfc+ 1(ur own currency exposure) in the mock question, if the £ appreciate 2% the impact on dollar returns depends upon the correlation betwn uk returns and currency movements if this correllation is .85 then Y will be affected by .85(Yfc)+ 1 for a US invesotr to realise returns exactly the same as currency appreciation of 2% there shd be zero correllation between uk returns and currency movement. maybesome can explain better with another example!