(c) Studies show that the correlations between domestic stocks are greater than the correlations between domestic and foreign stocks. Explain why this is likely to be the case. What implications does this fact have for international portfolio investors?
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- Which is a benefit of including international stocks in an investment portfolio? A. Greater ability to diversify B. Political risk exposure C. Exchange rate risk D. Financial riskWhich of the following refers to the Sharpe performance measure? It measures the sensitivity of a national market to world market movements. It shows an increase in the portfolio return at international level. It reflects the increase in the portfolio return at domestic-equivalent risk level. It estimates the excess return per standard deviation risk.a) Explain why international stock might have high volatility but low betas. b) Do you agree with the following statement? And explain why. “The Capital Asset Pricing Model [CAPM] assumes that the stock market is dominated by welldiversified investors who are concerned with specific risk. “c) Illustrate how to synthesize a forward hedging strategy by using only the money markets, in orderto hedge against the foreign exchange risk. d) Use a numerical example to illustrate that when there is a large change in the interest rate, theapproximation error by using the duration and convexity rule is smaller than the approximation errorby using the duration rule only. e) Why do we say a coupon bond can be seen as a package of zero-coupon bonds? Please use anumerical example for illustration. f) If the spot exchange between Euro and pound is Euro 1.1/Pound, and the UK Guilt returns a 0.5%yield. It is also known that the Euro is expected to depreciate against the pound by 0.5%. What is…
- Which of the following statements about currency risk is TRUE: Group of answer choices The currency risk of an international stock portfolio is the volatility of portfolio returns It is impossible to measure currency risk for international bond portfolios The currency risk of a domestic stock portfolio is zero None of these answers is correctThe correlation coefficient between the returns on a broad index of U.S. stocks and the returns on indexes of the stocks of other industrialized countries is mostly _____, and the correlation coefficient between the returns on various diversified portfolios of U.S. stocks is mostly _____.a. less than .8; greater than .8.b. greater than .8; less than .8.c. less than 0; greater than 0.d. greater than 0; less than 0.Assuming that the mandate to a portfolio manager was to invest in a broadly diversified portfolio of U.S. stocks, which two or three indexes should be considered as an appropriate benchmark? Why?
- You manage a portfolio of U.S. and global stocks. You are considering replacing global stocks with short-term US Treasury securities. Explain why this is or isn’t a good move.Which of the following is an adequate method of achieving portfolio diversification? a. Invest in various bonds and stocks. b. Invest in stocks and real assets of different industries. c. Invest internationally. d. All of these. e. None of these.Below are two alternative strategies under consideration by an investment fi rm:Strategy A : Invest in stocks that are components of a global equity index, have aROE above the median ROE of all stocks in the index, and have a P/E less thanthe median P/E.Strategy B : Invest in stocks that are components of a broad-based US equity index,have a ratio of price to operating cash fl ow in the lowest quartile of companies inthe index, and have shown increases in sales for at least the past three years.Both strategies were developed with the use of back-testing.1 . How would you characterize the two strategies?2 . What concerns might you have about using such strategies?
- The risk of investing in foreign stock markets depends on exchange rate uncertainty more than the risk of investing in foreign bonds. Select one: True FalseIn what sense do these market value ratios reflect investors’ opinions about a stock’srisk and expected future growth?a. What determines stock market valuations? b. Is a stock's price primarily determined by the discounted sum of future cash flows, monetary policy, or fear and greed? c. Is market timing possible using sentiment indicators such as put/call ratios and Investor's Intelligence surveys? Please ensure to add references and citations.