Exam 11: International Banking and Money Market

A US investor bought shares in ABC Inc.on the Frankfurt Stock Exchange 2 years ago for EUR 10,000.The exchange rate at that time was EUR 1.20/USD.Currently,the shares are worth EUR 11,000 and the exchange rate is EUR 0.80/$.The investor had sold EUR 10,000 (the principal investment amount at the same time that the stock was purchased)forward at the forward exchange rate of EUR 1.15/$.What is the dollar rate of return? Assume that the unhedged portion of the investment is exchanged at the current exchange rate.

Which of the following characterizes international investor behaviour?

A Canadian investor holds the British market portfolio.Calculate the variance of the monthly rate of return in Canadian dollar terms,if the variance of the British market return is 2,the variance between the U.S.dollar and the foreign currency is 20,the covariance is 2.34,and the contribution of the cross-product term is 0.06.

If the investor had sold £5,the principal investment amount at the same time that the stock was purchased,forward at the forward exchange rate of £0.60/$1.00,the dollar rate of return would be: