Suppose you are a U.S. investor who is planning to invest $815,000 in Mexico. Yo
ID: 2612494 • Letter: S
Question
Suppose you are a U.S. investor who is planning to invest $815,000 in Mexico. Your Mexican investment gains 10.3 percent. If the exchange rate moves from 12.5 pesos per dollar to 12.8 pesos per dollar over the period, what is your total return on this investment?
Suppose you are a U.S. investor who is planning to invest $815,000 in Mexico. Your Mexican investment gains 10.3 percent. If the exchange rate moves from 12.5 pesos per dollar to 12.8 pesos per dollar over the period, what is your total return on this investment?
Explanation / Answer
Initial investment in Mexican currency = $815,000 * 12.5 pesos per $
= 10,187,500 pesos
Investment value in Mexican currency after the period = 10,187,500 pesos * (1 + 10.3%)
= 11,236,813 pesos
Investment value in US currency after the period = 11,236,813 pesos / 12.8 pesos per $
= $877,876
Overall return in US currency = [$877,876 / $815,000 - 1] * 100%
= 7.72%