If a U.S. resident just sold shares in a British firm that had a 15% return (in pounds) during a period when the pound depreciated 5%, the dollar return of the investment is:
Answer: C
The formula is as below:
Dollar return = (1 + local return) (1 – currency depreciated) – 1
= (1 + 0.15) (1 – 0.05) – 1
= 1.15 × 0.95 – 1
= 1.0925 – 1
= 0.0925
Now, this is to be multiplied by 100 to get in percentage form.
Dollar return = 0.0925 × 100
= 9.25%
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