An American company decides to invest in a technology startup in the eurozone. The investment is made in euros (EUR), and the exchange rate at the time of the investment is 1 USD = 0.90 EUR. Two years later, the company sold its stake in the startup. At that time, the exchange rate had changed to 1 USD = 0.85 EUR. The initial investment was 500,000 USD. How much did the exchange rate fluctuation impact the return on the investment in USD?
Answer
A
The company gained 29 comma 411 point 7 6 USD.
B
The company lost 58 comma 823 point 5 3 USD.
C
The company gained 58 comma 823 point 5 3 USD.
D
The company lost 29 comma 411 point 7 6 USD.
Explanation
The initial $500,000 investment converted to €450,000 because $500,000 × 0.90 = €450,000. Assuming the stake’s euro value is unchanged, at the later rate it is worth €450,000 ÷ 0.85 = $529,411.76. That is a gain of $29,411.76 compared with the original investment, so the correct choice is “The company gained 29,411.76 USD.”
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