Local currency depreciation against the dollar has been a frequent occurence for U.S. investors in emerging markets. U.S. investors have consistently seen large % of their eturns erased by urrency depreciation. This is true even for long term investors.
That’s an unusual question. Is it testing you on historical data? Local currency depreciation will lower the domestic return, so that is true.
It seems true if only based on the info provided. Where is this question from??
singlesong80 Wrote: ------------------------------------------------------- > Local currency depreciation against the dollar has > been a frequent occurence for U.S. investors in > emerging markets. U.S. investors have consistently > seen large % of their eturns erased by urrency > depreciation. This is true even for long term > investors. Can’t be true for LT. The BRIC reading argues that a lot of future returns (in BRIC) is from currency appreciation when the emerging mkt countries improves their std of living --> currency up to level predicted by PPP.
true except long term investors
elcfa Wrote: ------------------------------------------------------- > > Can’t be true for LT. The BRIC reading argues that > a lot of future returns (in BRIC) is from currency > appreciation when the emerging mkt countries > improves their std of living --> currency up to > level predicted by PPP. this is going forward though. the question is asked in the past tense. i don’t remember anything mentioned in the curriculum - and by curriculum, i mean schweser - about historical currency movements. and if it’s not in the curriculum, i refuse to learn it until August!
dspapo Wrote: > this is going forward though. the question is > asked in the past tense. > Welll, how about Japan’s historical performance as quoted in the BRIC reading, pg 203 “between 1970 and 1995, the yen appreciated by 300%”, as well as other countries when the authors backtested their model?
elcfa Wrote: ------------------------------------------------------- > Welll, how about Japan’s historical performance as > quoted in the BRIC reading, pg 203 “between 1970 > and 1995, the yen appreciated by 300%”, as well as > other countries when the authors backtested their > model? But I think JAPAN is developedl, not emerging.
FRM2cfa Wrote: ------------------------------------------------------- > > But I think JAPAN is developedl, not emerging. Read the text carefully my friend. “Japan, which in 1960 was a developing country that was significantly poorer than Argentina)” pg 205. The point is the authors used a model which predicts stock return, a lot of which is based on exchange rate appreciation. They then validated the model with historical data (including the rate appreciation) and the model proved to be conservative. Thus the point dspapo made about applying only for the future not historical data is not correct.
currency effects on portfolio return are less imp for a long term investor. perhaps currency exposure is almost totally eliminated if a time frame of over a decade is considered. (Source: CFA Text - dont recall the SS though)