Exchange rate EUR/USD risk in investments denominated in USD in the period of the financial and economic crisis

Abstract

The paper discusses the evaluation of the influence of the EUR/USD exchange rate on the yield-rate of dollar share investments from the viewpoint of the Euro investor in varying investment periods with emphasis on the period of the financial and subsequent economic crisis targeted mainly in the period 2008–2010.The outputs of the paper are realized for the following investment periods: one-year, three-year, five-year, seven-year, ten-year and fifteen-year. The supplementary investment period is the twenty-year period, which due to the small number of observations is characterized by low informative value. The share investments denominated in USD are represented by investments in the S&P 500 Total Net Return that also considers reinvestment in the period 1988–2010.The basic methodical tool of the paper is quantification of the factors that influence the yield-rate of the foreign currency investments in the reference currency of the investor. Quantification mainly attaches to the ratio of the influence of the EUR/USD exchange rate on the yield-rate of the dollar share investments from the viewpoint of the euro investor.

Keywords

• exchange risk
• investment
• exchange rate
• return on investment
• financial and economic crisis
• Standard&Poor’s 500