One years German Stock index return in local currency 6.75%
USD/EUR in t0: 1.33
USD/Euro in t1: 1.38
One USD dollar return for american investor? Surely american investor is loosing on FX as he’s getting 1.33 Euro in t0 but then has to pay 1.38 Euro to transfer back into USD in t=1. Therefore he’s lloing approx. 3.8% on FX. And return should be approx. 2.90%…but answer seems to suggest that above FX quotes mean 1.33 USD for one Euro in t=0 and then 1.38 in t=1. That’s when answer would make senss to me. I have done heaps of questions and USD/Eru 1.33 would have always meant 1.33 Euro’s per USD…what’s different here?
not sure which question you are referring to, but in the example you give, EUR is APPreciating, so US investor gains on index return PLUS Euro appreciation. he does not “pay” 1.38 to transfer back to USD, he gets $1.38 for every Euro.
ps. just to be clear: USD/EUR of 1.38 means that 1 Euro buys $1.38
question 58 Afternoon CFAI mock it was. OK now I’m really confused since I solved all questions (currency futures etc) so far assuming that USDEUR 1.38 means 1.38 Euro per Dollar as USD is the quoted currency and never had an issue with this problem. I suppose difference here is that FX quoted in question is quoted DC/FC whereas mostly it’s FC/DC
lemiman you’re a legend. I never realised that Eur/USD and Eur:USD weren’t the same and always treated them the same so that answers my question. Good luck in the exam!