Suppose that you buy 10 BMW shares at 150 per share which cost you 1500. The spot rate at the time of purchase was AED 4.0/. The cost of your investment in Dirhams is therefore, AED 6000 (1500x4). During the following year your investment grew by 10% to 1650 (1500*1.1). Your profit is 150 (1650-1500). This looks nice! Or is it?

- As a UAE investor you want to change your Euros to Dirhams. Suppose that after one year the exchange rate between the Euro and the Dirham turned out to be AED 3.6/. (The euro depreciated against the dirham.)

- How much is your net profit/loss from your investment in BMW shares?

- Explain exchange rate risk based on your finding in this exercise?