Exam 15: International Portfolio Investment

In the context of investments in securities (stocks and bonds),portfolio risk diversification refers to

Emerald Energy is an oil exploration and production company that trades on the London stock market.Assume that when purchased by an international investor the stock's price and the exchange rate were £5 and £0.64/$1.00 respectively.At selling time,one year after purchase,they were £6 and £0.60/$1.00.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

The less correlated the securities in a portfolio,

Assume that you have invested $100,000 in Japanese equities.When purchased,the stock's price and the exchange rate were ¥100 and ¥100/$1.00 respectively.At selling time,one year after purchase,they were ¥110 and ¥110/$1.00.If the investor had sold ¥10,000,000 forward at the forward exchange rate of ¥105/$1.00 the dollar rate of return would be

The realized dollar returns for a U.S.resident investing in a foreign market will depend on the return in the foreign market as well as on the exchange rate fluctuations between the dollar and the foreign currency. Calculate the variance of the monthly rate of return in dollar terms,if the variance of the foreign market's return (in terms of its own currency)is 1.14,the variance between the U.S.dollar and the foreign currency is 17.64,the covariance is 2.34,and the contribution of the cross-product term is 0.04.

The stock market of country A has an expected return of 5 percent,and a standard deviation of expected return of 8 percent.The stock market of country B has an expected return of 15 percent and a standard deviation of expected return of 10 percent. Is it reasonable to conclude that your portfolio is on the efficient frontier? If not,then prove your point by finding just one portfolio weighting between A and B that offers more return with less risk.If you think it is on the efficient frontier,why do you think this? Either way,your answer should include verification.

Hedge funds

The stock market of country A has an expected return of 5 percent,and a standard deviation of expected return of 8 percent.The stock market of country B has an expected return of 15 percent and a standard deviation of expected return of 10 percent. Assume that the correlation of expected return between security A and B is 0.2.Calculate the standard deviation of expected return of a portfolio that has half of its money invested in A and half in B.

The return and variance of return to a U.S.dollar investor from investing in individual foreign security i are given by:

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock using 50 percent margin.One year after investment,the stock pays a £1 dividend,and sells for £54 the exchange rate has changed from €1.25 per pound to €1.30 per pound.The interest on the margin loan is 1 percent per year.The margin loan was denominated in pounds.

The stock market of country A has an expected return of 5 percent,and standard deviation of expected return of 8 percent.The stock market of country B has an expected return of 15 percent and standard deviation of expected return of 10 percent. Assume that the correlation of expected return between A and B is negative 1.Calculate the standard deviation of expected return of the portfolio in the last question.

Suppose you are a euro-based investor who just sold Microsoft shares that you had bought six months ago.You had invested €10,000 to buy Microsoft shares for $120 per share; the exchange rate was $1.55 per euro.You sold the stock for $135 per share and converted the dollar proceeds into euro at the exchange rate of $1.50 per euro.How much of the return is due to the exchange rate movement?

The stock market of country A has an expected return of 5 percent,and standard deviation of expected return of 8 percent.The stock market of country B has an expected return of 15 percent and standard deviation of expected return of 10 percent. Find the Global Minimum Variance Portfolio.

The record of investing in U.S.-based MNCs

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a $50 American stock.One year after investment,the stock pays a $1 dividend,and sells for $54 the exchange rate has changed from €0.625 per dollar to €0.6875 per dollar.

Which of the following is a true statement?

The "Sharpe performance measure" (SHP)is

Bema Gold is an exploration and production company that trades on the Toronto stock exchange.Assume that when purchased by an international investor the stock's price and the exchange rate were CAD5 and CAD1.0/USD0.72 respectively.At selling time,one year after the purchase date,they were CAD6 and CAD1.0/USD1.0.Calculate the investor's annual percentage rate of return in terms of the U.S.dollars if the investor had sold CAD5,the principal investment amount at the same time that the stock was purchased,forward at the forward exchange rate of CAD1/USD.80.

Assume that you have invested $100,000 in Japanese equities.When purchased the stock's price and the exchange rate were ¥100 and ¥100/$1.00 respectively.At selling time,one year after purchase,they were ¥110 and ¥110/$1.00.The dollar rate of return would be

A zero-coupon Japanese bond promises to pay ¥1,200,000 in five years.The current exchange rate is $1.00 = ¥100 and inflation is forecast at 3 percent in the U.S.and 2 percent in Japan per year for the next five years.The appropriate discount rate for a bond of this risk would be 10 percent if it paid in dollars.What is the appropriate price of the bond?