You decide to invest in an Australian stock with cash flows demoninated in Australian dollars. At the time of purchase, the stock traded at A$45/share and the exchange rate was A$1.5/US$. Find your rate of return (in US dollars) if the stock trades for A$30 and the exchange rate is A$1.2/US$ when you close your position.
-.3333
-.4667
-.1667
Cannot be determined
Answer: -.1667
Working notes for the above answer is as under
we have been given that , At the time of purchase, the stock traded at A$45/share and the exchange rate was A$1.5/US$.
So at the time of purchase what we have in dollar is
=45 /1.5
= A$30/share
Now , the stock trades for A$30 and the exchange rate is A$1.2/US$ when you close your position
So what we have at the time of losing is 30/1.2
=What You receive is $ 25
So previously at the time of purchase your value in us$ 30
Now at the time of trade its vale is Us$ 25
So upon return in $ is
= US$30- US$-25
= US$5
Particular | Amount in $ |
Purchase value | 30 |
Sale Value | 25 |
Return | -5 |
Now we will calculate return
= -5/30
= -0.1667