Suppose that a U.S. ﬁrm converts dollars into pounds in order to invest in a British enterprise in the U.K. A year later, the return on the investment is 12 percent in terms of pounds. If, during that period,
The dollar appreciated against the pound, then the return on the investment in dollar terms would be

Question

Quizplus · Accepted Answer

If the dollar appreciated against the pound, it means that the exchange rate has shifted in favor of the dollar. Therefore, when the U.S. firm converts its returns back into dollars, it will receive fewer dollars than if the exchange rate had remained constant or shifted in favor of the pound. This will result in a lower return on investment in dollar terms, making option B the correct answer.

Suppose That a U