Question

If you invested $1,000,000 (converting it to Moroccan currency), in a Morocco stock market index fund/the Morocco stock market for a year, and then converted the proceeds back to dollars, what would be the estimated return on your investment at the end of the year? Take into account all factors in Morocco.

Answer 1

The answer to this question is contained in 2 parts:

1. Market rate of return in Morocoo: We need to first evaluate the average returns offered by the Moroccan stock market which in this case is assumed to be Morocco Casablanca Stock Exchange MASI Index for lack of other information. Based on data from Bloomberg, the current 1-year return (as on 11th November 2019) is 9.67%

2. Exchange rate: Presently, 1 USD = 9.66 Moroccan Dirham (11th Novemeber 2019).

So, when you convert $1,00,000 into Dirham, you would get 9,66,000 which when invested in Moroccan stock market should give you approximately 10,59,412 Dirham at the end of the year.

As the next step, you would need to calculate the expected spot rate at the end of the year. As per International Fischer effect, the expected spot rate shall be a factor of interest rate differentials between the two countries. Now expected inflation in Morcco is around 1.3% while in US, it may be around 2%. So, the expected rate may be around 9.59. Hence, you would approximately get, $1,10427 which is almost 10.4% return.