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A simple question: When exchanging currency in order to finance an investment, is it standard/best practice to adjusted for exchange rates when calculating the NPL of that investment?

For example: I, a European, purchase 100 USD of american securities on Day 0, costing me 90 EUR @ a rate of 0.9 USD/EUR. At Day X, my security has seen growth to a market value of 120 USD, however today, the exchange rate is 0.8 USD/EUR. Is my return:

  1. (120 * 0.8) - (100 * 0.8) = 16 EUR

    OR

  2. (120 * 0.8) - (100 * 0.9) = 6 EUR

My intuition tells me calculation 2 is correct since I invested 90 EUR, and at Day X I have USD equivalence to 96 EUR? However, Yahoo Finance for example does not make these adjustments when calculating the Total Gain of portfolio.

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  • $\begingroup$ I am not surprised if Yahoo Finance does not handle multicurrency portfolios correctly. You would need a more advanced system than Yahoo Finance. Perhaps someone knowledgeable can suggest an alternative... $\endgroup$ – noob2 Jun 2 at 15:10
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    $\begingroup$ Any you'd recommend? Preferably free. $\endgroup$ – George Kerwood Jun 2 at 15:26
  • $\begingroup$ I assume you tried this suggestion from Yahoo already? (but it did not work?) help.yahoo.com/kb/… $\endgroup$ – noob2 Jun 2 at 17:12
  • $\begingroup$ Yes, I choose to view the value of my multi-currency portfolio in EUR. However, it calculates the yield as per method 1. Which i'm convinced is wrong. $\endgroup$ – George Kerwood Jun 2 at 17:16
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Your calculation 2 is the relevant metric since that is what you actually paid, and later received, both measured in your home currency EUR.

If you want to track it in Yahoo Finance, try adding two investments to your portfolio:

  1. The 100 USD bought at day 0 at EUR 90 and
  2. the US stock you bought at day 0 for EUR 90.

With both the USD position and the stock entered into your portfolio, Yahoo Finance will now track both of these in your home currency EUR.

The total portfolio value (EUR 180 at day 0) will be off, but the gain/loss will be accurate, and here's why.

At day X, Yahoo Finance will show

  1. The value of your 100 USD investment at day X as EUR 80, a €10 loss.
  2. Your stock will be shown as EUR 96, which is the stock's current price of USD 120 converted (by YF) to EUR at the current exchange rate, i.e. as EUR 96. This will show as a €16 gain, i.e. the USD 20 gain the stock made in USD, converted to EUR at today's (day X's) exchange rate.

Here's how you can make sense of it:

You made a €16 gain on the stock, and a €10 loss on your USD investment, which leaves you at a total gain of €6.

Yahoo Finance will show you these €6 as the portfolio's total gain - just take the total portfolio value with a grain of salt because we added the USD position as a pure "helper" item.

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  • $\begingroup$ Thank you for your answer and your Yahoo "Hack", I believe that will do the job nicely in tracking gains more accurately. $\endgroup$ – George Kerwood Jun 4 at 5:15

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