Question

In: Finance

Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per...

Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $12,000 to invest, and the current exchange rate is $2/£. Suppose now the investor also sells forward £6,000 at a forward exchange rate of $1.90/£. 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 (£) Rate of Return (%) at Given Exchange Rate Exchange Rate:

$1.80 / £ $2.00 / £ $2.20

£36 / £41 /   £46

Solutions

Expert Solution

Ans. Dollar denominated Return :-

Price Per Share/ Exchange Rate 1.80 2.00 2.20
36 -14% -15% -16%
41 -2.75% -5% -2.25%
46 8.50% 10% 11.50%

Detailed Calculation & Explanation is attached below :-


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