Answered: Calculate the dollar-denominated…

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

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 28QA

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Concept explainers

Interest Rate

When you deposit your money with the bank, the deposit earns you some extra money at the end of the specific period – something more than what you deposited. That amount of money that the bank pays you for keeping the money with the bank is the “interest” and the percentage at which the bank pays you for your amount is called the “interest rate”.

Question

Suppose a U.S. investor wishes to invest in a British firm currently selling for £64 per share. The investor has $12,800 to invest, and the current exchange rate is $2/£.

Suppose now the investor also sells forward £6,400 at a forward exchange rate of $1.90/£.

Required:

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

a. Calculate the dollar-denominated returns for each scenario. (Round your percentage answers to 2 decimal places. Negative
amounts should be indicated by a minus sign.)
Price per
Share (£)
£
42
£
60
65
70
Exchange Rate
Rate of Return (%) at Given Exchange Rate
$1.80/£
$2.00/€
$2.20/€
%
%
%
%
%
%
%
%
%

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