Required: Suppose you are a euro-based investor who just sold Microsoft shares that you had bought six months ago. You had invested 10,000 euros to buy Microsoft shares for $120 per share; the exchange rate was $1.06 per euro. You sold the stock for $162 per share and converted the dollar proceeds into euro at the exchange rate of $0.97 per euro. First, determine the profit from this investment in euro terms. Second, compute the rate of return on your investment in euro terms. How much of the return is due to the exchange rate movement? Note: Do not round intermediate calculations. Round 'profit' to the nearest whole number. Enter your answer as a percent rounded to 2 decimal places. Profit Rate of return % Rate of return due to exchange rate movement %

Required: Suppose you are a euro-based investor who just sold Microsoft shares that you had bought six months ago. You had invested 10,000 euros to buy Microsoft shares for $120 per share; the exchange rate was $1.06 per euro. You sold the stock for $162 per share and converted the dollar proceeds into euro at the exchange rate of $0.97 per euro. First, determine the profit from this investment in euro terms. Second, compute the rate of return on your investment in euro terms. How much of the return is due to the exchange rate movement? Note: Do not round intermediate calculations. Round 'profit' to the nearest whole number. Enter your answer as a percent rounded to 2 decimal places. Profit Rate of return % Rate of return due to exchange rate movement %

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

Required:
Suppose you are a euro-based investor who just sold Microsoft shares that you had bought six months ago. You had invested 10,000
euros to buy Microsoft shares for $120 per share; the exchange rate was $1.06 per euro. You sold the stock for $162 per share and
converted the dollar proceeds into euro at the exchange rate of $0.97 per euro. First, determine the profit from this investment in euro
terms. Second, compute the rate of return on your investment in euro terms. How much of the return is due to the exchange rate
movement?
Note: Do not round intermediate calculations. Round 'profit' to the nearest whole number. Enter your answer as a percent
rounded to 2 decimal places.
Profit
Rate of return
%
Rate of return due to exchange rate movement
%

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