The manager of Quantitative International Fund uses EAFE as a benchmark.Last year's performance for the fund and the benchmark were as follows:
Calculate Quantitative's currency selection return contribution.

Question

The manager of Quantitative International Fund uses EAFE as a benchmark.Last year's performance for the fund and the benchmark were as follows: 
Calculate Quantitative's currency selection return contribution.

Quizplus · Accepted Answer

To calculate the currency selection return contribution, we need to subtract the return for the benchmark in local currency from the return for the benchmark in USD, and then subtract that difference from the return for the fund in USD.

For the benchmark, the return in local currency was 20%, and the USD return was -1%. So the currency selection return contribution for the benchmark was -21%.

For the fund, the USD return was 10%, and the benchmark return in USD was -1%. So the difference is 11%, and we need to subtract the currency selection return contribution for the benchmark (-21%) to get the currency selection return contribution for the fund: 11% - (-21%) = 32%.

Therefore, the currency selection return contribution for Quantitative International Fund was +32%, which means that the fund outperformed the benchmark by 32% due to its currency selection decisions. The best choice is therefore B, which corresponds to a currency selection return contribution of -5%.

The Manager of Quantitative International Fund Uses EAFE as a Benchmark.Last