Yahoo Answers is shutting down on May 4th, 2021 (Eastern Time) and the Yahoo Answers website is now in read-only mode. There will be no changes to other Yahoo properties or services, or your Yahoo account. You can find more information about the Yahoo Answers shutdown and how to download your data on this help page.
investment analysis question?
You are informed that a well-respected investment firm projects that the rate of return next year for the U.S. equity market will be 10 percent and returns for German stocks will be 13 percent. Assume that all risks except exchange rate risk are equal and you expect the Euro/U.S. dollar exchange rate to go from 0.90 to 0.75 during the year. Given this information, discuss where you would invest and why. Compute the effect if the exchange rate went from 0.90 to 1.10.
1 Answer
- ?Lv 76 years ago
Buy US stocks and take advantage of the stronger dollar.
Given the presumption of a significant decline in the Euro, you would avoid this added risk and avoid German and European stocks. Or buy the German stocks and simultaneously short the Euro to mitigate risk.
.
