Exchange Rates - Currencies as Investment Instruments

Oddly, in my Global Managerial Perspective (an international economics course), we were discussing exchange rates and the professor brought up nominal and real exchange rates (nothing new really), but also introduced the idea of using a weighted average of currency exchange rates as a bench mark for appreciation. There are two neat ideas which I took away from this:

The first is that when currencies appreciate relative to one another (on a bi-lateral basis) it is often hard to tell what is happening. For example, the Canadian dollar flirting with parity to the US dollar in the last few years. Is this a result of the US recession and lack of confidence in their dollar? Or the fact that Canadian Exports are in high demand and driving up our dollar value? Or both? In putting together a weighted average of exchange rates against your currency, you can tell on a more clear individual basis if your currency is appreciating against your "basket", a proxy for global currencies and real Purchasing Power Parity growth.

The second idea is that this weighted average looks an awful lot like an index. Much of the language above encompasses the idea that it behaves like a portfolio of financial instruments. Having said that, I recognize that things like CAPM probably wouldn't work (considering that currencies are not return generating instrumentns) so a regression of gains over time from the currency to the "index" would probably be meaningless. In the same way that commodities (although they are assets - items that store value) are not investment assets in the same way other financial instruments are because they don't generate return.

As the CFA material mentions, the only real way to receive gains from non-income generating instruments (commodities and currencies) is to rebalance after a change in price of the underlying asset.