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

Question

Quizplus · Accepted Answer

The return in pound sterling can be calculated by adjusting the local return by the currency movement. If a stock rises by 20% in local terms (India), it becomes 1.20 times its original value. If the pound sterling rises 25% against the Indian rupee, it means that the rupee has depreciated, and you need fewer pounds to buy the same amount of rupees. To adjust the local return into pounds, you divide the local return by the change in currency value: 1.20 / 1.25 = 0.96, which means the value in pounds is 96% of the original, indicating a 4% decrease, or -4%.

A Stock in India Rises 20% in Local Terms