Question

Calculate the contribution to total performance from currency, country, and stock selection for the manager in the following table. All exchange rates are expressed as units of foreign currency that can be purchased with one U.S. dollar.

Short answer

Currency = -1.5% Loss;

Country = -0.75%

Stock = -2.45%

Step-by-step solution

Calculation of currency selection

EAFE: [(.30) x (–10%) + (.10) x 0% + (.60) x (1.1 – 1.0)] = 3%

Manager: (.35) x (-10%) + (.15) x 0% + (.50) x (10%) = 1.5%

Hence the loss % relative to EAFE = Manager – EAFE

= 1.5% - 3%

= -1.5% Loss

Calculation of country selection

EAFE: [(.30) x (20%) + (.10) x 15% + (.60) x 25%] = 22.50%

Manager: (.35) x (20%) + (.15) x 15% + (.50) x (25%) = 21.75%

Hence the loss % relative to EAFE = Manager – EAFE

= 21.75% - 22.50%

= -0.75% Loss

Calculation of Stock selection

[(18% – 20%) × 0.35] + [(20% – 15%) × 0.15] + [(20% – 25%) × 0.50] = – 2.45%

Hence the loss % relative to EAFE = -2.45%