A European investor holds a portfolio worth $1 million invested in American stocks. The dollar just went down against the euro (the base currency), and the investor wonders what the result would have been if she had hedged the dollar risk in the past month. The US stock portfolio went up by 1 percent, and the dollar went down from one euro per dollar to 0.95 euro per dollar. The one-month interest rates (annualized) are 5 percent in dollars and 4 percent in euros. What would have been the one-month return?



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