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Currency-free evaluation of investment results

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  • Ladany, S. P.

Abstract

In a non-stationary currency-exchange-rate environment, real investment results are obscured by the currency selected for reporting. To provide an equal-base comparison of all investment returns, irrespective of the currencies used for reporting, it is suggested that investment returns, expressed in a given currency, should be multiplied by an index related to that currency. The proposed index is the ratio of the sum of the weighted exchange rates in the base period, and the sum of the weighted exchange rates in the current period; the weights being the total national assets, amounts of foreign trade, or similar measures. The index measures the inverse of the investment return ratio in a non-earning situation in which the investment is distributed among the different currencies proportionally to the weights. Therefore, it is argued that the result measures the real return relative to this "opportunity investment return ratio." A numerical example is provided.

Suggested Citation

  • Ladany, S. P., 1988. "Currency-free evaluation of investment results," Omega, Elsevier, vol. 16(4), pages 319-323.
  • Handle: RePEc:eee:jomega:v:16:y:1988:i:4:p:319-323
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