What type of risk can you diversify and should you include Global or Foreign stocks in diversification?
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7. What type of risk can you diversify and should you include Global or Foreign stocks in diversification?
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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 risk7. What is diversification in the stock market and how many stocks do you need to own to diversify risk?2) Suggest what is the best financial instrument to offset market risk exposure and from market volatility? WHY?
- 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…From the perspective of the treasury professional, which of the following is a type of market risk but is NOT a type of financial risk? Commodity price risk Equity price risk Interest rate risk Foreign exchange (FX) riskThis question relates to the two types of risk and to diversification. a)What is specific risk? b)What is market risk? c)What is meant by diversification? d)Explain why diversification is a useful tool to manage specific risk but not market risk. Be sure you answer clearly both why diversification can help manages specific risk as well as why it is not useful in managing market risk. e)Approximately how many stocks in a portfolio do you need to be fully diversified?
- What additional factors must be considered when you apply this microanalysis approach to the valuation of stock markets around the world?Reflect on the following areas on financial risk management: 1.Volatility of foreign exchange 2.Volatility of commodity, prices and interest rates 3. Also reflect on these areas on risk management process: fowards, futures,swaps, options and hybrid securitiesWhich of the following is the risk due to a changes in the stock market? Business risk Financial risk Market risk Interest rate risk Purchasing power risk Exchange rate risk
- 5 The measure of risk is called: Group of answer choices Beta The market rate of return The rate provided by short term government securities The rate provided by long term government securitiesMarket risk arises from the level or volatility of market prices of assets. It involves the exposure to movements in the level of financial variables such as share prices, interest rates, exchange rates or commodity prices. Briefly explain SEVEN (7) the types of risk in this category, which corresponds to market risk in the risk framework8) What is the term ei in the single-index model equation ri = E(ri) + βiF + ei? A) the impact of unanticipated macroeconomic events on security i's return. B) the impact of unanticipated firm-specific events on security i's return. C) the impact of anticipated macroeconomic events on security i's return. D) the impact of anticipated firm-specific events on security i's return. E) the impact of changes in the market on security i's return.
