Quick price/base currency calc

Kamala Gupta, a currency management consultant, is hired to evaluate the performance of two portfolios. Portfolio A and Portfolio B are managed in the United States and performance is measured in terms of the US dollar (USD). Portfolio A consists of British pound (GBP) denominated bonds and Portfolio B holds euro (EUR) denominated bonds.

Can someone please comment on my logic: Because portfolio A consists of GBP bonds, the return on that portfolio should be in terms of USD / GBP (aka GBP is the base?)? Even though the portfolio performance is said to be measured in USD?

So when calculating (1+Rfc)(1+Rfx)=Rdc, we calculate Rfx by looking at the change in the USD / GBP rate?

Thanks in advance!!


If you calculate the problem above and use Rfx then the price currency should always be the domestic currency.

JJ1337 - so the OP is incorrect? It should be the inverse?

doemstic currency should be the price currency

Correct, Rfx should be quoted like domestic / foreign (price / base). Just looked in the CFAI text, where I had even highighted that exact phrase. This teaches me about practicing EOCs without coffee…