Suppose You Start with $100 and Buy Stock for £50

question 16

Multiple Choice

Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2.One year later,the stock rises to £60.You are happy with your 20 percent return on the stock,but when you sell the stock and exchange your £60 for dollars,you only get $45 since the pound has fallen to £1 = $0.75.This loss of value is an example of

• A)exchange rate risk.
• B)political risk.
• C)market imperfections.
• D)weakness in the dollar.

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