Why adding weight when calculating domestic-currency return on a portfolio of multiple foreign assets

CFA Level III Portfolio Management
#1

As stated in the textbook, the formula of calculating domestic-currency return on a portfolio of multiple foreign assets is below:

RDC=n∑i=1ωi(1+RFC,i)(1+RFX,i)−1

My understanding is if I have assets in FCY A and FCY B, to get the total return of the portfolio I only need to add two separate assets’ returns together. Why there is a need to add weight here? Does the domestic-currency return imply weight-average return?

#2

Maybe there are multiple countries in the overall portfolio?

#3

But why weight is needed in “multiple countries” situation?

#4

Of course.

  • 50% UK asset earned 10% with an exchange rate earning 1%

  • 50% jPY asset earned 20% with an exchange rate earning -5%

how would you calculate that without weights?

#5

I think I got it. Thank you.

Maybe I need a little break before continuing study.