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Assume that you have invested $100,000 in British equities. When purchased the stock's price and the exchange rate were £50 and £0.50/$1.00 respectively. At selling time, one year after purchase, they were £45 and £0.60/$1.00. If the investor had sold £50,000 forward at the forward exchange rate of £0.55/$1.00, the dollar rate of return would be:

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ebrightosagie

Answer: 7.58%

Explanation:

Given Data

Invested capital = $100,000

Stock price during purchase = £50

Exchange rate = $.50/$1.00

Selling rate after 1 year = £45

Exchange rate = $.60/$1.00

HPR = gain / pain * 100

= $50,000 * $1.00/$.55 + $10,000 * $1.00/ $.60 - $100,000 / $100,000 * 100%

= $50,000 * $1.812 + $10,000 * $1.667 - $100,000 / $100,00 * 100%

= $90,909.09 + $16666.67 - $100,000 / $100,000 * 100

= $7575.76 / $100,000 *100%

= 0.0757576 * 100%

= 7.58%

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