$\begin{array}{|l|l|l|}
\hline & \text { Start of period } & \text { End of period } \
\hline \text { Investment value (USD) } & \$ 1000 & \$ 1200 \
\hline \text { Exchange rate (AUD/USD) } & 1.3500 & 1.3500 \
\hline
\end{array}$
-Given the information contained in the table regarding a foreign investment an Australian investor made in the US,what is the discrete Australian dollar (AUD)return over the period?

Question

Quizplus · Accepted Answer

There are two ways to answer this question.The first involves converting the start of period and end of period values into AUD and then calculating the AUD return as you would for any other investment.That is,the start of period value of the investment in AUD is $21.50 F1F1F1S1F1F1F10 1/1.3500 = $29.03 and the end of period value is $19.20 F1F1F1S1F1F1F10 1.3200 = $25.34.The return on this investment is therefore (25.34 - 29.03)/29.03 = -0.127 or -12.7%.Alternatively,the USD return on the investment is (19.20 - 21.50)/21.50 = -0.1070 or -10.70% and the percentage change in the exchange rate is (1.3200 - 1.3500)/1.3500)= -0.0222 or -2.22% which,using equation 3.1,page 90,gives (0.893)(0.978)- 1 = -0.127 or -12.7%.

-Given the Information Contained in the Table Regarding a Foreign