Q1 = taking an ETF on oil, long in $US with oil at say $US 100/b..... cashing in 2 moths later with the oil price still at $100, but with the currency differential changing from say from parity to 1 AUD = 0.8 USD...... how much do I get back ? is it + 25% ?
Q2 = taking an ETF on oil, long in $A with oil at say $US 100/b..... cashing in 2 moths later with the oil price still at $100, but with the currency differential changing from say from parity to 1 AUD = 0.8 USD...... how much do I get back ? is it still + 25% ?
Q1, buy 1 barrel, cost = 100 USD = 100 AUD. Sell 2 months later for 100 USD = 100/0.8 = 125 AUD. That is, 25% profit assuming that the ETF price moves in synch with the oil price.
Q2, buy 1 barrel, cost = 100 USD = 100 AUD. Sell 2 months later for 125 AUD. That is, 25% profit. Note that if somebody wants to buy one barrel of oil from you after the 2 months, then that person will need to pay you the equivalent of 100 USD, which is obviously 125 AUD at the end of the 2 months in the scenario that you have described.
The real difference occurs when the AUD slides in the following scenario.
Buy $100 (USD and AUD at parity) of a US stock that increases by 0% over 2 months while the AUD declines 20%. Sell at the end for 100 USD, which is now 125 AUD. That is, 25% profit.
compared with
Buy $100 (USD and AUD at parity) of an Oz stock that increases by 0% over 2 months while the AUD declines 20%. Sell at the end for 100 AUD. That is, 0% profit.
