Equilon FXCarry meets
currency.
Put an interest return and an exchange-rate change into the same base-currency calculation.
−2.24%
Illustrative net result, measured in the base currency.
A 4% holding return is outweighed by a 6% currency decline in this example.
Translate the entire ending value
The gross ending value is 100 × (1 + holding return) × (1 + currency change). The model then subtracts the stated funding cost applied to the original 100. At 4% holding return and −6% currency change, 100 × 1.04 × 0.94 = 97.76 before funding cost.
This is not a carry-trade valuation model
The experiment omits leverage, margin calls, compounding within the holding period, fees, taxes, hedging and forward pricing. Its purpose is to isolate translation risk. A difference between two policy rates is not the same as an available realised return. The BIS discussion of measuring carry trades gives institutional context.