I’m confused in how to calculate gains in relation to the initial exchange rate. For an investment of 1000 of X currency in Y currency at the initial rate of 1X to 25Y.

Two years later Y has lost 12% of its value to X. How should return and profit be calculated?

So the investment pays me an annual dividend. Which is around 6% of the foreign currency amount. When I figure the devaluation of the currency, would I consider it a 4% profit after 2 years and maybe less next year or look at my profits in the foreign currency?

In: 2

For the first part it is a simple 12% loss over that two year period assuming i undersstand you correctly. (X was invested in Y and Y then lost value.)

The latter is a bit trickier Added up everything received from Y over the time period, then convert it to x and compare to your initial investment.

Is it profit if it lost value … ?