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 $6,000 to invest, and the current exchange rate is $2/£.

Calculate the dollar-denominated returns for each scenario. (Round your answers to 2 decimal places. Negative amounts should be indicated by a minus sign. Leave no cells blank be certain to enter '0' wherever required. Omit the "%" sign in your response.)

Rate of return (%)
at Given Exchange Rate

Suppose a U.S. investor wishes to invest in a British firm currently selling for £30 per share. The investor has $6,000 to invest, and the current exchange rate is $2/£.

Suppose now the investor also sells forward £3,000 at a forward exchange rate of $1.95/£.

Explanation / Answer

He has invested 6000 to invest, which is 3000 pounds. So he can purchase 3000/30 = 100 shares at 30

The table is as shown below:

Price per share Pound Amout in pounds $1.80/pound $2/pound $2.20/pound 26 2600 -22.00% -13.33% -4.67% 31 3100 -7.00% 3.33% 13.67% 36 3600 8.00% 20.00% 32.00%

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