I’m a bit confused when we have to add 1 to the local currency (LC) when calculating ICAPM?
For eg in CFAI EOC Reading 62 Question 13A:
- When calculating the re on Stock A why aren’t we adding 1 to the sensitivity to the euro = 1 + 1 = 2?
However in Schweser type questions - refer to Challenge Problems Reading 62 Question 18.
- here we are infact adding 1 to the currency exposure to euro - 0.25+1 = 0.75
What’s the go, what am i missing? Are we not adding 1 in the CFAI question because it already is 1?
Thanks in advance