The expected return on the Japanese stock in U.S. dollar terms must consider both the return on the asset in yen terms and the change in the value of the yen. The change in the value of the yen is -20%. The return in U.S. dollar terms is then: R$ = RLS + S + (RLS)(S) = .16 + (-.2) + (.16)(-.2) = .16 - .2 - .032 = -7.2 | 
