International Finance Exam

C. the simultaneous purchase of currencies from several countries in hopes of profiting from increasing

The political risk of investing in developed countries is roughly comparable with the risks of investing in the developing countries.

50) __________ says to seek out investments that offer the greatest expected risk-adjusted real return.

1. Explain why an individual investor might want to invest in an international growth fund?

Broadly comparing Western Areas total annual return of -30.19% to the annual market return of 1.58% there is quite clearly a stark difference. However as Western Areas’ return directly hinges upon the Nickel price, which has dropped 37.8% in spot price over the past year, these raw return figures must be adjusted for risk.

Swaps in simple language means, the act of exchanging one thing for another. In financial terms it means an agreement in which two parties agree to exchange series cash flows at some future times according to terms stated in the agreement (Chance and Brooks 2012). They are derivatives because their value is ascertained from some other financial instrument, such as a loan or bond. Swaps are generally priced based on a notional value, which is the dol¬lar value of a contract. The most common type of swap is the interest rate swap in which the two parties agree to enter into an agreement which involve the exchange of payments of fixed rate interest for the payments of floating rate interest or vice versa in the same currency calculated by reference to a mutually agreed notional

The availability of a universe of assets internationally, and accessibility to these assets and the markets where they trade has opened a plethora of opportunities to investors across borders who seek diversification accompanied by return maximization and corresponding risk reduction through international portfolio investments. Moreover, the limiting effects of economic cycles on assets in a particular country can now be hedged through international portfolio formation and investing that incorporates the advantage of cross country diversification in nations whose economic cycles

These studies discussed above implicitly assume that the local and US investors have homogeneous expectations about future prospects of all markets. However, in practice, different market conditions can cause investors to generate differential risk perceptions. Some studies argue that investor sentiment may augment to the price divergence between ADRs and their underlying stocks.

Hard currencies are a currency, usually from a highly industrialized country, that is widely accepted around the world as a form of payment for goods and services. A hard currency is expected to remain relatively stable through a short period of time, and to be highly liquid in the forex market (Investopedia, 2009). The forex market is the largest, most liquid market in the world with an average traded value that exceeds $1.9 trillion per day and includes all of the currencies in the world. There is no central marketplace for currency exchange; trade is conducted over the counter. The forex market is open 24 hours a day,

References: American Economic Association, JEL Classification Codes Guide. Retrieved October 6, 2012 from: http://www.aeaweb.org/jel/guide/jel.php Centre d'Etudes Prospectives et d’Informations Internationales (CEPII) (2011). Geodesic Distances. Retrieved on October 6, 2012 from: http://www.cepii.fr/anglaisgraph/bdd/distances.htm International Monetary Fund. (2012). International Financial Statistics Yearbook 2012. Washington, DC: International Monetary Fund Krugman, Obstfeld, and Melitz (2012), International Economics Theory & Policy, (9th edition), Pearson Education United Nations. (2011). 2011 International Trade Statistics Yearbook. New York: United Nations. Retrieved on October 14, 2012 from: http://comtrade.un.org/pb/CountryPagesNew.aspx?y=2011 United Nations Statistics Division, Countries or areas, codes and abbreviations. Retrieved October 15, 2012 from:

Diversification is worth more than a word. It works on reducing the total risk of a portfolio with different asset types. But what contributes to the success of portfolio diversification? A large size of portfolio? A variety types of asset allocation? Adding international investment? Numerous of risk factors? They are all indicators of a well-diversified portfolio. But it is hard to achieve a perfectly diversified portfolio in reality because you cannot diversify all types of risk. Following, we will discuss about the advantages and disadvantages of diversification in portfolio management under circumstances. On one hand, some mention that dynamic and numerous asset allocations in the portfolio will reduce idiosyncratic risk and some level of market risk. While some also suggest benefit exists of introducing multi-factor pricing models to cover different risk factors. On the other hand, arguments arise demonstrating adding international investment may disappoint investors because foreign markets could be correlated and moved together in a global world. Another disadvantage further defined will be the correlated asset allocations weaken the effect of diversification. At the end, conclusion will be drawn to support the useness of diversification.

To capture the cross-border contagion in proceeds, the research will utilize the value approach that will test whether the trial observations in the filtered returns are related across nations. Trial observations are the filtered returns in the lower deciles of a nation’s time series allotment over the whole sample period. The research will use the logit model to tackle the problem of contagion by approximating whether a specified nation is more expected to have the worst return in a specified week, restricted to other countries having as well experienced the worst return in the preceding week. The dependent variable is an indicator variable that is set to one in case the local nation index under study has a weekly return in the lower deciles of every weekly proceeds for that nation and zero otherwise (Morrison & White, 2013 p. 645). To evaluate

Studies about determinant factors of equity return in each country is useful for global portfolio managers and global economic policy makers. Investors, in making profit, need to consider some risky aspects, to make speculation easier to be known, before investing in financial instruments in any country (Chandran et al. 2011, p.1). On the other hand, the government needs to attract capital inflow to support some development investments (Hadad cited in Hermansyah 2016).

* Interest rate swaps: These entail swapping only the interest related cash flows between the parties in the same currency.

Eur and Resnick attempted to create ex bet portfolio choice systems to acknowledge potential additions from universal broadening under adaptable trade rates. For the exact investigation the Morgan Stanley Capital lntemational Perspective every day stock record values for the United States and the other six nations were embraced. The stock records of United States, Canada, France, Germany, Japan, Switzerland, and the U.K. were worth weighted and it was an agent of a local stock file store. The information arrangement were given in both the United States and the neighborhood monetary forms for the period from December 3 1, 1979, through December 10, 1985. Techniques, for example, connection, difference and covariance have likewise been utilized to know the adjustments in securities exchange over the nations.