A Peruvian investor buys 150 shares of a U.S. stock for $7,500 ($50 per share). Over the course of a year, the stock goes up by $4 per share.

a) If there is 10% gain in the value of the dollar vs the Peruvian nuevo sol, what will be the total percentage return to the Peruvian investor? First deterime the new dollar value of the investment and multiply this figure by 1.10. Divide this answer by $7500 and get a percentge value and then subtract 100% to get the perccentage return.

B) Instead assume that the stock increases by $7 but that the dollar decreases by 10% vs the nuevo sol. What will be the total % return to the peruvian investor? Use 0.90 in place of 1.10 in this case.

Forex investments are very risky in nature due to their very tendency of frequent fluctuations in value. Their volatility is the reason, investors wish to hedge their investments against future insecurities by various hedging instruments.

a)There are two parts in the total return calculation of the investor. First, the increase in stock price and second, the appreciation of dollar against the Peruvian currency. As given in the description of calculation in the question itself, the total percentage return to the investor is calculated as follows:

New dollar value due to rise in price of stock = 150 x ($50 + $4) = $8,100

Total percentage return to Peruvian investor due to appreciation in value of dollar = ($8,100 x 1.10 / $7,500) – 1 = 1.188 – 1 = 0.188 or 18.8%

b)Total percentage return to Peruvian investor due to depreciation in value of dollar = ($8,100 x 0.90 / $7,500) – 1 = 0.972 – 1 = -0.028 or -2.8%

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A Peruvian investor buys 150 shares of a U.S. stock for $7,500 ($50 per share). Over the course…