Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $10,000 to invest, and the current exchange rate is $2/£.
a. How many shares can the investor purchase?
b. Fill in the table below for rates of return after 1 year in each of the nine scenarios (three possible prices per share in pounds times three possible exchange rates).
|
Price per Share (£) |
Pound Denominated Return (%) |
Dollar Denominated Return For Year End Exchange Rate |
||
|
$1.80/£ |
$2/£ |
$2.20/£ |
||
|
£35 |
||||
|
£40 |
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|
£45 |
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c. When is the dollar denominated return equal to the pound denominated return?