Question
suppose you wish to invest in stock in Microsoft which is listed on the NY stock exchange. the current exchange rate is ZAR17, 5 per
suppose you wish to invest in stock in Microsoft which is listed on the NY stock exchange. the current exchange rate is ZAR17, 5 per USD. Assume that the price level for a typical consumption basket in the SA is 3 times the same consumption basket in the USA. One year later the price levels SA has risen5 5% while the price level in the USA has risen by 2%. The new exchange rate is USD0, 0565 per ZAR1. If the 1 year return on your investment in Microsoft stock was 6. How much of this would have been lost due to exposure to foreign currency risk. Support your answer with appropriate calculations and an explanation.
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