What’s the difference between domestic currency exposure and local currency exposure in clear english?
from the web:
"This is actually not so difficult to understand… Just think of an investment in a foreign stock as 2 separate investments: a) the investment in the stock, and b) the foreign currency investment. The later is where the 1 comes from: say you are a US Investor and have bought stocks in a Japanese firm. If you assume for a second that the Yen value of the stock is unchanged, then the return on your investment in USD terms will depend entirely on the USD/JPY exchange rate - a 10% appreciation of the JPY would increase the USD value of tthe investment by 10%, a 5% depreciation would lower the value of your investment by 5%. This is where the +1 comes from. The first part is what the formular refers to LC and is the impact a change in the JPY exchange rate has on the value of your stock. A Japanese exporter will benefit if the JPY depreciates. Vice-versa, the stock of a Japanese importer is likely to decline in value as the currency depreciates. The domestic currency exposure is therefore the local currency exposure (i.e. the sensitivity of the stock to changes in the exchange rate) plus 1. Does this help at all? "