Suppose a U.S. investor wishes to invest in a British firm currently selling for £24 per share. The investor has $48,000 to invest, and the current exchange rate is $2/£. Suppose now the investor also sells forward £24,000 at a forward exchange rate of $1.90/£. Calculate the dollar-denominated returns for each scenario.
Suppose a U.S. investor wishes to invest in a British firm currently selling for £24 per share. The investor has $48,000 to invest, and the current exchange rate is $2/£. Suppose now the investor also sells forward £24,000 at a forward exchange rate of $1.90/£. Calculate the dollar-denominated returns for each scenario.
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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Suppose a U.S. investor wishes to invest in a British firm currently selling for £24 per share. The investor has $48,000 to invest, and the current exchange rate is $2/£.
Suppose now the investor also sells forward £24,000 at a forward exchange rate of $1.90/£.
Calculate the dollar-denominated returns for each scenario.
Transcribed Image Text:Rate of Return (%) at Given Exchange Rate
Price per
Share (£)
Exchange Rate
$1.80/£
$2.00/£
$2.20/£
%
%
%
%
£
20
%
25
%
£
30
%
%
%
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