Innocent Abroad Case Study Essay

A currency exposure is any business operation whose profitability can be impacted by a currency exchange rate fluctuation.

(See all the possible combinations on TABLE 2). 6. a) The portfolio’s risk would decrease if more stocks were.

(a) Estimate the expected return and standard deviation for a portfolio that allocates 50% to stock #1

Now Using above formulae, lets calculate portfolio's return,variance and standard deviation for different possible two factor portfolios:

A. The composition of the optimal international portfolio is identical for all investors, regardless of home country

(2) How does the riskiness of this two-stock portfolio compare with the riskiness of the individual stocks if they were held in isolation?

d. What is the expected return on a portfolio that is equally split among A, B and the risk free asset? The expected return on the risk free asset is 4%. 9.27%

2. Some risks that are common between domestic and international funds are: losing money and management risk. Any investment has some type of risk. Losing money is the first risk that every investment has whether it is domestic or international. Management risk is the bad management decisions that a company makes. Some unique risks that only international funding has are: economic risk, country/regional risk, and currency risk. Currency risk is the chance that the value of a   foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in the currency exchange rates. Economic risk is the stability of a country’s economic. Country/regional risk is political, financial troubles, and natural disasters that will affect the value of securities issued by companies in foreign countries or regions.

* Refer sheet “10000 Sales” for cost incurred and Gain/loss for AIFS for different scenarios and actual sales volume of 10000.

RJR needs yen cash flows in years 1-5 given above. To convert these at a 7.1% swap rate into dollar cash flows at 10.92% :

Exhibit 7 from the case study describes the currency development in medium term of the GBP and EURO against the dollar. We can observe that the currencies are exposed to high volatility, which means the company may register greater risk

This report is created with a discussion over several important international finance topics for instance, interest-rate parity, currency risk management, regarding description on Carrefour S.A. financing policies as well as hedging strategy. Additionally, we also discussed on which currency Carrefour should issue its 10-year, 750 million euro, annual coupon bond, its foreign currency risk exposure and a possible hedging decision in dealing with any or all of the identified risks.

Aspen has become a public company with more risk adverse investors who want to invest in the core business of the firm and not assume any foreign exchange risk. Foreign exchange risk is a core risk to Aspen’s business because they have many customers outside of the United States. We believe that transferring this risk to the customers would limit Aspen’s growth on the foreign markets: Aspen should keep its current marketing strategy, which includes credit installment payments and payments in local currencies for Japan, the UK and Germany. The current risk management program hurts the company because it doesnot consider Aspen’s expenses abroad that balance sales exposures to currency fluctuations. We then recommend that

International Financial Management Trial Exam Closed Book Examination INCLUDEPICTURE uvafileserverjligter1DataOnderwijsInternational Financeif2008sbriederLocal SettingsTempRarDI04.890ABS-logo.gif MERGEFORMAT Closed Book Examination Answer as brief and concise as possible redundant or superfluous remarks may lead to a lower score. The maximum score per problem is given between parentheses. The maximum score of the whole exam is 100 points. QUESTION 1 - 20 points SHAPE MERGEFORMAT This graph depicts the REAL value of the broad index which is a weighted average of the foreign exchange values of the U.S. dollar against the currencies of a large group of major U.S. trading partners. a) Consider the following table of price levels,

Diversification is a method of investing that been shown to increase portfolio return while reducing portfolio risk as measured by standard deviation. This method specifically increases the efficient frontier for investors. The challenge to an investing firm is an appetite by its customers for an ever increasing efficient frontier. One area to explore to obtain this increase is through further diversifying through international diversification.