Calculate the contribution to total performance from currency, country, and stoc
ID: 2768988 • Letter: C
Question
Calculate the contribution to total performance from currency, country, and stock selection for the manager relative to EAFE in the following table. All exchange rates are expressed as units of foreign currency that can be purchased with 1 U.S. dollar. (Round your answers to 2 decimal places. Do not round intermediate calculations. Input all amounts as positive values. Omit the "%" sign in your response.)
EAFE Weight
Return on
Equity Index
E1/E0
Manager's Weight
Manager's Return
Europe
0.5
12
%
1.1
0.4
14
%
Australasia
0.2
16
1.2
0.55
16
Far East
0.3
17
1.3
0.05
16
EAFE Weight
Return on
Equity Index
E1/E0
Manager's Weight
Manager's Return
Europe
0.5
12
%
1.1
0.4
14
%
Australasia
0.2
16
1.2
0.55
16
Far East
0.3
17
1.3
0.05
16
Explanation / Answer
Answer: 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
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