Account for currency development in IRR calculations

Hi,

I am doing some IRR calculations using the xIRR function and I want to account for the currency development to know what part of the performance stems from the underlying asset development and what from currency. The cashflows are in different currencies.

It is straight forward for other growth metrics (cagr, etc.) but I am not so sure about it for the IRR calculations.

How would you go about it?

Thanks for any help.

Kind regards

/B

Answer 1

[Shivam Lahoti]

Hey Björn,

You shall use the xIRR function to understand the impact of currency development on the overall IRR by following method:

• For the underlying asset's performance: Calculate the IRR using the cashflows converted to the common currency by using the currency exchange, assuming no currency changes. This will provide the IRR solely based on the asset's performance.
• For the currency impact: Calculate the IRR using the difference between the actual cashflows and the cashflows that would result from applying the currency changes. This will give you the IRR attributed solely to currency development.

You can refer to this link to understand more about xIRR function:

https://in.mathworks.com/help/finance/xirr.html?s_tid=doc_ta