summer 2018 exam 21 Protected Vie Savethis PC Sign in Mailin

summer 2018 exam 21 Protected Vie Savethis PC Sign in Mailings Review View Add-ins Help ? Tell me what you want to do Foreign financial markets 1. A US investor purchased stock in a Canadian company on May 1,2018 for C$77.85. The investor sold the stock on June 29 for C$82.15. What is the investor\'s percentage return on the investment in Canadian dollars? 2. If the exchange rate for the Canadian dollar wat 1.2268 on May 1 and 1.2940 on June 29, what is the investor\'s percentage return on the investment in US dollars? 3. How should an investor whose investment portfolio consists solely of domestic investments Explain.

Solution

1) Purchase price = C$77.85

Sale price = C$82.15

Profit = C$4.3

Profit percentage = 4.3/77.85 = 5.5%

2) US dollar strengthened and thus canadian dollar weakened

1 canadian dollar = 1/1.2268 = 0.815128 (at the time of purchase)

1 canadian dollar = 1/1.294 = 0.772797 (at the time of sell)

So it weakened by 5.2%

Thus, return of investor in US dollars = (1+5.5%)*(1-5.2%) = 0.014%

3) As seen in the above example, thought the stock performed well but due to additional currency risk, the returns in US were not great. So investor must always consider \"Currency Risk\" while adding foreign investment in the portfolio.