Question

quizet 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.)

Answer 1

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

Step-by-step explanation:

Solution:

Given that:

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

The Country selection:

Now,

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

Thus,

The 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

Note: EAFE means Europe, Australasia, and Far East

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