Mock 2012 L 2 Afternoon Sess, Q 58 on Domestic currency return

The one year dollar return on the German Stock index is

Rf on German stock index + Appreciation of the German (foreign currency)

=.0675 + .0376

I failed to understand the third factor in the asnwer (.0376 X .0675)

Thanks in advance for your help.

It depends on whether you use the approximation formula or you use uncovered interest rate parity formula.

{(1 unit of the DC x FC Return x S1) / S0} - 1 = your return