A stock in India rises 20% in local terms. The Indian rupee rises 25% against the U.K. pound sterling. What is the return in pound sterling?

Question

Quizplus · Accepted Answer

The total return in pound sterling is calculated by adjusting the stock's local return for the currency exchange rate change. If the stock rises 20% in local terms and the Indian rupee rises 25% against the pound, the combined effect is a multiplication of the two returns (1 + 0.20) * (1 + 0.25) = 1.2 * 1.25 = 1.5, which is a 50% return in pound sterling terms.

A Stock in India Rises 20% in Local Terms