Which outcome is expected from using the formula for domestic return on foreign-currency investment?

The expectation from using the formula for domestic return on foreign-currency investment is to reflect the combined effect of currency and asset returns. This means that when assessing the return on an investment denominated in a foreign currency, it's essential to account for both the performance of the asset itself (e.g., stocks or bonds) and the fluctuations in the foreign currency relative to the domestic currency.

The combined effect is critical for investors because the return from the investment in the asset could be realized in one currency, while the underlying value could be influenced by the exchange rate with the investor's home currency. For example, even if a foreign asset provides a strong return, adverse currency movements can diminish the profitability when expressed in the investor's home currency. Therefore, the formula captures how changes in foreign exchange rates impact the overall returns from the investment, providing a more comprehensive view of the investment's performance.

The other options do not capture this dual impact effectively. Showing only the impact of currency movements would ignore the actual performance of the asset itself. Calculating expected returns solely based on local rates disregards currency effects, which can significantly alter returns when converting back to the domestic currency. Providing a historical average of returns does not apply to the current investment analysis, as it does not