A British investor owns a portfolio of U.S. stocks worth US $20 million. The current spot rate and one-month forward exchange rates are £0.66/$. Interest rates are equal in both countries. The investor sells forward $15 million to hedge currency risk because he is concerned about the outcome of the US elections. A week later, the US stock portfolio has gone up to $21,200,000, and the spot and forward exchange rates are now £0.56/$.
a. Find out R* or return in home or domestic currency. 1
b. Find out the hedged returns, RH. 2 2.