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).
Dollar-Denominated Return for Year-End Exchange Rate
Price per Share (£)
Pound-Denominated Return (%)
$1.80/£
$2/£
$2.20/£
£35
£40
£45
c. When is the dollar-denominated return equal to the pound-denominated return?
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