Calculate the Euro-Based Return an Italian Investor Would Have Realized

question 52

Essay

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock.One year after investment,the stock pays a £1 dividend,and sells for £54 the exchange rate has changed from €1.25 per pound to €1.30 per pound,although he sold £8,800 forward at the forward rate of €1.28 per pound.
Spot exchange rates at the start and end of the year are shown in the table. $$\begin{array} { | l | l | l | l | } \hline & \text { Spot Rate } \mathrm { T } = 0 & \text { Spot Rate } \mathrm { T } = 1 & \text { Forward rate } \\\hline \text { Euro } & \$ 1.60 & \$ 1.60 & \$ 1.625 \\\hline \text { pound } & \$ 2.00 & \$ 2.08 & \$ 2.08 \\\hline\end{array}$$

---

Definitions:

Supreme Court

The highest judicial court in a country or state, which in the United States consists of nine justices and has the final say in interpreting the Constitution.

Industrial Recovery

Refers to periods of economic resurgence following industrial decline, often associated with government policies aimed at revitalizing manufacturing and related sectors.

Banking Crisis

A financial situation in which banks suffer a sudden loss of solvency, leading to a lack of confidence among depositors, potential bank runs, and a collapse in the banking sector.