Suppose an MNC invested $100,000 of its dollar reserves in the Mexican stock market. One year later, the value (in Mexican pesos) of its Mexican investments has increased 65%. During the same year, the U.S. dollar appreciated by 25% against the peso (i.e.

The company's rate of return on this investment, in dollars, was \approx imately 28.1%. Here's how to calculate it: 1. Start with the initial investment in dollars: $100,000. 2. Convert that to pesos using the exchange rate at the time of the investment. Let's say it was 10 pesos per dollar, so the initial investment in pesos was 1,000,000. 3. After one year, the value of the investment in pesos has increased by 65%, so it's now worth 1,650,000 pesos. 4. However, during that same year, the exchange rate changed so that it now takes 12.5 pesos to buy one dollar (an appreciation of 25% in the dollar's value against the peso). 5. So to convert the investment back into dollars, we divide its current value in pesos by the current exchange rate: 1,650,000 pesos ? 12.5 pesos/dollar = $132,000. 6. Finally, we calculate the rate of return (in dollars) as the difference between the final value of the investment in dollars and the initial investment, divided by the initial investment: ($132,000 - $100,000) ? $100,000 = 0.321, or \approx imately 28.1%. So the company's rate of return on this investment was about 28.1%.