A U.S. investor purchased some shares in Germany for 25 euros and sold them a year later for 42 euros. If at the beginning of the year the exchange rate was $1.20/euro and at the end of the year the exchange rate was $1.05/euro, what return did this investor earn in U.S. dollars?
A) 47.0%
B) 92.0%
C) 55.5%
D)
The correct answer is: a)
(Return in US$)
= (1 + Return on Foreign Currency) x (1 + Return on Investment in Foreign Currency)  1
Therefore, (1 + Return on Foreign Currency) = ($1.05/euros) Ã· ($1.20/euros) = 0.875
and (1 + Return on Investment in Foreign Currency) = 42Â euros Ã· 25 euros = 1.68
Thus, (Return in US$) = (0.875)(1.68)  1
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â = 0.47 or 47%
MORE FAQS

Committing acts against the Commodity Exchange Act can result in fines up to ...

You observe the following exchange rates in the following markets ...

KLM Corporation shares just paid a dividend of $1.34. Earnings are expected to grow at 7% while the ...

What is the formula for calculating net present value (NPV)?

The real rate of return is the amount of interest earned over and above the?

When and why did the euro make its debut as a currency?

What's the difference between absolute and relative return?

I gave an answer on the test from my study guide that was scored wrong on the Series 63 exam. Why?

What is the difference between a company's annual return and its annualized return?

What are some examples of a Foreign Institutional Investor (FII)?

A customer has a short margin account. The account has equity of $15,000 ...

Stock A has a standard deviation of 16% and a beta of 1.1 ...

How does the required rate of return affect the price of a stock, in terms of the Gordon growth model?

Customer account records of NFA members must be kept for ...

How many attempts at each CFA exam is a candidate permitted?

Do financial advisors need to pass the Series 7 exam?

Do financial advisors need to be approved by FINRA?

How does a broker decide which customers are eligible to open a margin account?

Why is the Nasdaq more heavily weighted to tech stocks than other stock exchanges?
RELATED FAQS

Committing acts against the Commodity Exchange Act can result in fines up to ... ...
Free info on financial certification exams including study guides, exam questions, and much more! 
You observe the following exchange rates in the following markets ...
Free info on financial certification exams including study guides, exam questions, and much more! 
KLM Corporation shares just paid a dividend of $1.34. Earnings are expected to grow ...
Free info on financial certification exams including study guides, exam questions, and much more! 
What is the formula for calculating net present value (NPV)?
Learn about the formula for net present value (NPV) and how this calculation is used in capital budgeting to determine which ... 
The real rate of return is the amount of interest earned over and above the?
The real rate of return is the amount of interest earned over and above the: a. discount rate. b. tax rate. c. inflation ...

Currency Pairs
Two currencies with exchange rates that are traded in the retail ... 
Return
The gain or loss of a security in a particular period. The return ... 
Uncovered Interest Arbitrage
A form of arbitrage that involves switching from a domestic currency ... 
Covered Interest Rate Parity
This term refers to a condition where the relationship between ... 
Total Return
When measuring performance, the actual rate of return of an investment ... 
Foreign Exchange Risk
1. The risk of an investment's value changing due to changes ...