Exam 19: Globalization and International Investing

The present exchange rate is C $1 = US $0.77.The 1-year future rate is C $1 = US $0.73.The yield on a 1-year U.S.bill is 4%.A yield of __________ on a 1-year Canadian bill will make investors indifferent between investing in the U.S.bill and the Canadian bill.

All exchange rates are expressed as units of foreign currency that can be purchased with one U.S. dollar. Answer the following questions about decomposing the manager's performance. -What is the difference in return of the manager's portfolio due to currency selection?

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤. -After one year,the exchange rate is $1.50/₤ and the share price is ₤45.How much of your dollar-denominated return is due to the currency change?

Which emerging country has the highest percentage growth in market capitalization?

Assume there is a fixed exchange rate between the Canadian and U.S.dollar.The expected return and standard deviation of return on the U.S.stock market are 13% and 15% respectively.The expected return and standard deviation of return on the Canadian stock market are 12% and 16% respectively.The covariance of returns between the U.S.and Canadian stock markets is 1.2%.If you invested 50% of your money in the Canadian stock market and 50% in the U.S.stock market,the expected return on your portfolio would be __________.

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤. -How many shares can the investor purchase?

WEBS are ____________________.

The risk-free interest rate in the US is 4% while the risk-free interest rate in the UK is 9%.If the British pound is worth $2.00 in the spot market,a 1-year futures rate on the British pound should be worth __________.

The variation in betas of emerging markets suggests that ____________.

Suppose the 6 month risk-free rate of return in the USA is 5%.The current exchange rate is 1 Pound = US $2.05.The 6 month forward rate is 1 Pound = US $2.00.The minimum yield on a 6 month risk-free security in Britain that would induce a U.S.investor to invest in the British security is ________.

Research indicates that that exchange risk of the major currencies has been _________ over time.

A fund has assets denominated in euros and liabilities in yen due in six months.The six month forward rate for euro is $1.36 per euro and the six month forward rate for the yen is 121 yen per dollar.The six month forward rate for the euro versus the yen should be ________ per euro.

According to a regression of market cap on GDP virtually all countries without major oil revenues that restrict private sector growth and/or suffer from major political strife wind up with _______ per capita GDP than/as predicted by the regression.

Generally speaking,countries with ______ capitalization of equities have ________.

Among emerging countries the largest equity market in 2007 was located in _____________.

The yield on a 1-year bill in the U.K.is 6% and the present exchange rate is 1 Pound = US $2.00.If you expect the exchange rate to be 1 Pound = US $1.95 a year from now,the return a U.S.investor can expect to earn by investing in U.K.bills is approximately __________.

The proper formula for interest rate parity is given by ___________.

If you limit your investment opportunity set to only the largest six countries in the world in terms of equity capitalization as a percentage of total global equity capital you will include about _______ of the world's equity.

A U.S.hedge fund owns Swiss franc bonds.The fund manager believes that if Swiss interest rates rise relative to U.S.interest rates the value of the franc will rise.To limit the risk to the fund's dollar return,the fund manager should __________.

A country has a PRS political risk rating of 75,a financial score of 40 and an economic score of 35.The country's composite rating is _________.