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Suppose a U.S. investor wishes to invest in a British firm currently selling for £30 per...

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Finance

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

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

Calculate the dollar-denominated returns for each scenario.(Round your answers to 2 decimal places. Negative amountsshould be indicated by a minus sign.)

Price per Share (£)Rate of Return (%) at Given ExchangeRate
Exchange Rate:$1.80/£$2.00/£$2.20/£
£26%%%
£31%%%
£36%%%

Answer & Explanation Solved by verified expert
4.0 Ratings (463 Votes)
Rate of return Price per share Exchange rate 180 200 220 2600 1450 1583 1717 3100 050 083 117 3600 1550 1750 1950 WORKINGS Number of shares purchased 6000230 100 Price per share of GBP 26 Sale value of 100 shares 10026 260000 Exchange rate of 180 Amount realized at forward rate 2600195 507000 Profit on balance GBP 30002600195180 6000 Total    See Answer
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Transcribed Image Text

Suppose a U.S. investor wishes to invest in a British firmcurrently selling for £30 per share. The investor has $6,000 toinvest, and the current exchange rate is $2/£.Suppose now the investor also sells forward £3,000 at a forwardexchange rate of $1.95/£.Calculate the dollar-denominated returns for each scenario.(Round your answers to 2 decimal places. Negative amountsshould be indicated by a minus sign.)Price per Share (£)Rate of Return (%) at Given ExchangeRateExchange Rate:$1.80/£$2.00/£$2.20/££26%%%£31%%%£36%%%

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