Exercise 5-27 AlgoInvestment advisors recommend risk reduction through international diversification. International investing allows you to takeadvantage of the potential for growth in foreign economies, particularly in emerging markets. Janice Wong is considering investmentin either Europe or Asia. She has studied these markets and believes that both markets will be influenced by the U.S. economy, whichhas a 24% chance for being good, a 60% chance for being fair, and a 16% chance for being poor. Probability distributions of the returnsfor these markets are given in the accompanying table.State of the U.S. Returns in Returns inEconomyGoodFairPoorEurope10%Asia27%9%-5%10%-9%a. Find the expected value and the standard deviation of returns in Europe and Asia. (Round intermediate calculations to at least 4decimal places and final answers to 2 decimal places.)EuropeAsiaExpected value7.00 %11.04 %Standard deviation5.25 %%b. What will Janice pick as an investment if she is risk neutral?O Investment in EuropeO Investment in Asia

SOLUTION :Let's calculate the expected value and standard deviation for both Europe and Asia.The…

Answered: Exercise 5-27 Algo Investment advisors…

Essentials Of Business Analytics

1st Edition

ISBN:9781285187273

Author:Camm, Jeff.

Publisher:Camm, Jeff.

Chapter11: Monte Carlo Simulation

Section: Chapter Questions

Problem 25P

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Investment advisors recommend risk reduction through international diversification. International investing allows you to take advantage of the potential for growth in foreign economies, particularly in emerging markets. Janice Wong is considering investment in either Europe or Asia. She has studied these markets and believes that both markets will be influenced by the U.S. economy, which has a 20% chance for being good, a 50% chance for being fair, and a 30% chance for being poor. Probability distributions of the returns for these markets are given in the accompanying table. State of the U.S. Returns in Returns in Economy Good Fair Poor Europe 10% 6% -6% Asia 18% 10% -12% a. Find the expected value and the standard deviation of returns in Europe and Asia. (Round intermediate calculations to at least 4 decimal places. Round your final answers to 2 decimal places.) Expected value Standard deviation Europe Asia 3.20 % 5.00% % % b. What will Janice pick as an investment if she is risk…
Investment advisors recommend risk reduction through international diversification. International investing allows you to take advantage of the potential for growth in foreign economies, particularly in emerging markets. Janice Wong is considering investment in either Europe or Asia. She has studied these markets and believes that both markets will be influenced by the U.S. economy, which has a 19% chance for being good, a 48% chance for being fair, and a 33% chance for being poor. Probability distributions of the returns for these markets are given in the accompanying table. State of the U.S. Economy Returna in Heturns in Europe 16 31 Asia Good 24 Fair Poor -41 a. Find the expected value and the standard deviation of returns in Europe and Asia. (Round intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.) Europe Asia Expected value Standard deviation
Investment advisors recommend risk reduction through international diversification. International investing allows you to take advantage of the potential for growth in foreign economies, particularly in emerging markets. Janice Wong is considering investment in either Europe or Asia. She has studied these markets and believes that both markets will be influenced by the U.S. economy, which has a 21% chance for being good, a 52% chance for being fair, and a 27% chance for being poor. Probability distributions of the returns for these markets are given in the accompanying table. Return Rates in Europe: Good, 10%; Fair, 4%; Poor, -3% Return Rates in Asia: Good, 24%; Fair, 4%; Poor, -18% a. Find the expected value and the standard deviation of returns in Europe and Asia. (Round intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.)
Multinational Finance and investment Q2 c) Illustrate how to synthesize a forward hedging strategy by using only the money markets, in order to hedge against the foreign exchange risk. d) Use a numerical example to illustrate that when there is a large change in the interest rate, the approximation error by using the duration and convexity rule is smaller than the approximation error by using the duration rule only.
46 FDI often involves the establishment of new production facilities in foreign countries such as Honda's Ohio plant. ut of Select one: O True O False 47 The world beta" measures the ut of Select one: O a risk of default and bankruptey. O b risk-adjusted performance. O c.unsystematic risk. O d sensitivity of returns on a security to world market movements.
Question 20 Advantages of going global for U.S. banks include all but which one of the following? Greater opportunities to exploit economies of scale Diversification of earnings Low fixed costs involved in international expansion Greater sources of funds
global risk factors What are some examples of global risk factors? What factors are most prevalent in today’s market? How can one modify investment strategies to account for such risks? (at least 200 word)
QUESTION 15 When considering long-term foreign exchange fluctuations which of the following cause- effect relationships is true? options A. As inflation decreases, the real interest rate decreases and the currency weakens. B. When unemployment decreases, the local economy is stronger and the currency strengthens. C.Greater liquidity and smaller spreads lead to stronger local currency. D.Interest rate increases indicate weaker monetary policies which make a country less attractive to foreign investors and result in weaker local currencies. QUESTION 15(B) The inside market at a pure order driven exchange is 40 bid, 40.5 asked for ABC. Brokers then submit a limit buy order at 40.125, and a limit sell order at 40.425. If you then submit a small buy market order, at what price will your order be filled? options A.40 B. 40.625 C. 40.5 D.40.425 E. 40.125
QUESTION 24 Due to the political and country risks involved in international business, firms should: O A. do business only in countries where they can guarantee their shareholders profit on every project. OB. attempt to assess, measure, and manage risks before investing abroad. OC. do business only in developed countries. O D. All of the above O E. None of the above
Multinational Finance & investment Q2 c) Illustrate how to synthesize a forward hedging strategy by using only the money markets, in order to hedge against the foreign exchange risk.
Question 1 An Australian portfolio manager is considering increasing the diversification of her portfolio by investing in foreign mutual funds from Canada and Portugal with the following features: Australia Canada Portugal Expected return 14% 11% 7% Standard deviation 10% 9% 6% Correlation with 1.0 0.40 0.05 Australia a) Compute the expected return and standard deviation of the following portfolios: Portfolio A: 25 per cent Canada, 75 per cent Australia Portfolio B: 25 per cent Portugal, 75 per cent Australia Portfolio C: 50 per cent Canada, 50 per cent Australian Portfolio D: 50 per cent Portugal, 50 per cent Australia Portfolio E: 75 per cent Canada, 25 per cent Australia Portfolio F: 75 per cent Portugal, 25 per cent Australia b) Based on the above data above, which country seems to offer the best diversification potential for Australian investors? c) If you were risk averse, which foreign mutual fund would you add to your Australian portfolio? What percentage of your funds would be…
QUESTION 17 Using the equation S = I+ NCO we can say a. Savers can do two things with their funds, invest them domestically through NCO or in foreign markets via I b. Savers can do two things with their funds, invest them domestically through I or in foreign markets through NCO c. Savers have unlimited options for their money d. Investment and NCO must be equal QUESTION 18 As the Real Exchange Rate rises a. Foreign purchases become more expensive O b. People do not want to buy things from abroad O c. Foreign purchases become cheaper in the domestic currency O d. Net Capital Outflows may decrease

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