 # SS #16- Reading 44- Q#2

on page 104 - 105 in working out part C…wouldn’t the Yen Return be equal to the dollar Return… Japanese Index Beg 100 End 105 Yen/Dollar Beg 100 End 105 How do they get to (pg A-11) “-0.05 is dollar return on the Japan Index minus the Yen return on the index??”

If I’m getting 100 Yen/dollar at the beginning of the month, but now I’m getting 105Yen/dollar at the end of the month, the dollar has appreciated and the Yen has Depreciated b/c I’m getting more Yen per Dollar or Less Dollars per Yen. So 100 to 105 Yen/Dollar is a roughly -5% return on Yen.

Correct…i am with you…BUT…isn’t that only half of it? We agree that the Yen depreciated 5% But wouldn’t the 2nd part be that the Japanese Index appreciated 5% So the net return is 0%? I applied this logic for the Euro portion of the portfolio and it matched the CFA Answer, so I am wondering if this part of the Q is errata material.

Alright so the Local Index Gained 5%. And the Local Currency Depreciated 5%. First the Japan Index in Base Currency went from 100 to 100. So the Base/dollar Return on Japan Index is 0%. Then the Currency Return was -5%. So I gues 0 + -5% = -5%.

I get it… " Return on Index" = ( Beg Value LC / Exch Rate ) so 100/100 = 1 and (End Value LC/ Exch Rate) so 150/150 = 1 (1/1) - 1 = 0% "Yen Return on Index" (105/100) - 1 = 5% So 0% vs 5% LC…so -5% because of currency affects.