Total return analysis: currencies vs bonds

Background: Drawing from the analogy of familiar fixed-income investments, we can think of the purchase of a unit of sterling in much the same way as purchasing a US Treasury bond. In the case of the bond transaction, we are exchanging cash (US dollars) for a series of future cash obligations of the UK Treasury (sterling).

The key point is that the notion of a transaction to exchange one financial asset for another is always present. We can therefore generalise all financial transactions into

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