Suppose a U.S. investor wishes to invest in a British firm currently selling for

Question

Suppose a U.S. investor wishes to invest in a British firm currently selling for £30 per share. The investor has $14,400 to invest, and the current exchange rate is $2/E Suppose now the investor also sells forward £7,200 at a forward exchange rate of $2.05/S. Calculate the dollar-denominated returns for each scenario. (Round your answers to 2 decimal places. Negative amounts should be indicated by a minus sign.) Price per Share (£) Exchange Rate: Rate of Return (%) at Given Exchange Rate $1.80/E $2.00/E $2.20/E 21 26 31

Explanation / Answer

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1.80 stock value Fwd cover spot value ($) Return($) Rate Of Return(%) 5040 10332 0 10332 -4068 -28.25% 6240 12792 0 12792 -1608 -11.17% 7440 14760 432 15192 792 5.50% 2.00 stock value Fwd spot 5040 10332 0 10332 -4068 -28.25% 6240 12792 0 12792 -1608 -11.17% 7440 14760 480 15240 840 5.83% 2.20 stock value Fwd spot 5040 10332 0 10332 -4068 -28.25% 6240 12792 0 12792 -1608 -11.17% 7440 14760 528 15288 888 6.17%

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