Question

Calculate the contribution to total performance from currency, country, and stock selection for the manager in the example below. All exchange rates are expressed as units of foreign currency that can be purchased with 1 U.S. dollar. (Do not round intermediate calculations. Round your answers to 2 decimal places. Input all amounts as positive values.) EAFE Weight Return on Equity Index E1/E0 Manager's Weight Manager's Return Europe 0.2 11 % 1.2 0.32 10 % Australasia 0.4 18 0.7 0.4 22 Far East 0.4 16 1.4 0.28 22

Answer 1

Check the explanation

Step-by-step explanation:

Currency selection: EAFE/ Manager weight × Currency appreciation(E1/E0 -1)

EAFE: [0.50×(1.1-1)] + [0.20 × (1.2-1)] + [0.30 × (1.3-1)] = 18.0%

Manager: [0.40×(1.1-1)] + [0.55 × (1.2-1)] + [0.05 × (1.3-1)]= 16.5%

Loss of 1.5% relative to EAFE

Country selection:

EAFE/ Manager weight × Return on Equity Index

EAFE: 0.5×12% + 0.2 × 16% + 0.30 × 17% = 14.3%

Manager: 0.4×12% + 0.55 × 16% + 0.05 × 17% = 14.45%

Loss of 0.15% relative to Manager

stock selection : (Manager’s return - Return on Equity Index) × Manager weight

[ (14% - 12%) × 0.4] + [ (16% - 16%) × 0.55] + [(16% - 17%) × 0.05] = -7.5%

Loss of 7.5% relative to EAFE