A. 150; B. 100; C. 75; D. 40; E. 35 45. An American purchased us$1,000 worth of

Question

A. 150; B. 100; C. 75; D. 40; E. 35 45. An American purchased us$1,000 worth of British Pounds Sterling from a foreign exchange (forex) broker to buy British Auto (ticker: BA) stock denominated in British $1.20/E1. The merican took her newly purchased British pounds to an Ämerican stock pounds exchange rate was Eo = broker that had a British office and bought 20 shares of BA stock for E41.66/share. BA pays no cash dividends. One year later, the American sold her long position in BA for E40/share. The exchange rate was E1 $1.1/E1 when BA was sold. Ignoring taxes and commissions, what was the American investor's holding period return in U.S. dollars from her investment in BA? A" 4.74%; B, 5.82%; C.6.95%; D' 8.10%; E, 8.90%

Explanation / Answer

BA buy price 41.66 Pound BA sell price 40 Pound Loss 1.66 % Loss (1.66/41.66) 3.98% Pound Buy price (1/1.2) 0.833333 Pound Pound Sell price (1/1.1) 0.909091 Pound Gain 0.076 % Gain (0.076/0.833) 9.09% Net 5.11% Next nearest answer is B

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