Assume that you have invested $100,000 in Japanese equities. When purchased the stock's price and the exchange rate were ¥100 and ¥100/$1.00 respectively. At selling time, one year after purchase, they were ¥110 and ¥110/$1.00. If the investor had sold ¥10,000,000 forward at the forward exchange rate of ¥105/$1.00 the dollar rate of return would be:

Question

Quizplus · Accepted Answer

The initial investment of $100,000 is equal to ¥10,000,000 (100,000 x 100). After one year, the value of the Japanese equities increased to ¥110, meaning that the total value of the investment is now ¥11,000,000 (110 x 100,000).

If the investor sells ¥10,000,000 forward at the forward exchange rate of ¥105/$1.00, they will receive $95,238.10 (10,000,000/105).

The dollar rate of return can be calculated as follows:

(Proceeds from forward sale - initial investment) / initial investment x 100%

= ($95,238.10 - $100,000) / $100,000 x 100%

= -4.76%

Therefore, the dollar rate of return is -4.76%, which is closest to answer B (4.32%).

Assume That You Have Invested $100,000 in Japanese Equities