Which one of the following will have little if any, effect on a well-diversified portfolio? terroristic attack on the U.S. explosion at a distribution warehouse sudden increase in market interest rates increase in exchange rate

Which one of the following will have little if any, effect on a well-diversified portfolio? terroristic attack on the U.S. explosion at a distribution warehouse sudden increase in market interest rates increase in exchange rate

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterA6: Appendix 6: Government Intervention During The Asian Crisis

Section: Chapter Questions

Problem 6DQ

See similar textbooks

Related questions

Q: Explain the International Fisher effect and Interest Rate Parity. If these parity exists, explain…

A: Interest parity rate shows the balance and comparison of difference of interest rates between two…

Q: Do you agree with the following claim? “U.S. companies with global operations can give you…

A: The question is based on the concept of globalization and its impact on risk by way of…

Q: If a country is having its currency pegged to the U.S. dollar (hard peg), and the confidence in the…

A: To defend its fixed rate against the dollar, the central bank should dip into its international…

Q: why should investors consider constructing global portfolios? As part of your response, be sure to…

A: Global portfolios are all such portfolios which will be providing investors with an opportunity to…

Q: Question 1 When pricing an American security in the binomial model, which of the following best…

A: Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: Which of the following could trigger an expansion? a. sudden cutback in investment spending…

A: The correct option is D. financial crisis

Q: Question Other things being constant, if the U.S. real rate of interest exceeds that of its trading…

A: Real interest rate is referred to as the interest rate that a lender, investor, or saver receives…

Q: In a money-market hedge you either borrow or invest in a foreign currency at foreign…

A: The question is related to Foregin Exchange. The Interest rate parity states that interest rate…

Q: A U.S. exporting firm may use foreign exchange futures to hedge its exposure to exchange rate risk.…

A: Company's having operations, receivables, or payables in foreign currencies are exposed to risk of…

Q: why should investors consider constructing global portfolios?how do currency fluctuation concern s…

A: Global portfolios mean- Purchase share of foreign company or companies. Purchase bonds issued by a…

Q: If US dollars gets lower interest rates in the United States. How would this affect a fundamental…

A: There are two methods to calculate the future or forward currency exchange rates - Interest rate…

Q: Which of the following factors is not expected to generally have a favorable impact on the firm's…

A: Explanation: 1. Easy access to international capital markets: It will give new opportunities for…

Q: If the firm ,NAB economists,had exposures in currencies such as Brazilian Real or Indonesian Rupiah,…

A: Hedging is the act of protecting oneself against any occurrence of event of loss in future. It is…

Q: Indian interest rates are normally substantially higher than U.S. interest rates. Assuming that…

A: Introduction: Interest rate parity is nothing but a model that the difference in interest rates…

Q: If a central bank decreases interest rates, then gradually: a. the country's gross domestic product…

A: An interest rate is defined as the amount the lender uses to charge the borrower on the principal…

Q: Once capital markets are integrated, it is difficult for a country to maintain a fixed exchange…

A: Capital markets are places where money is exchanged between people who supply capital and those who…

Q: international

A: Benefits of international portfolio diversification : . Risk Can Be Reduced: Having an international…

Q: If the downward pressure on the currency persists for a long period, even after successive…

A: Downward pressure: It is the devaluation in the value of the currency. It mainly happens when the…

Q: If the United States imports more goods from abroad than it exports, thenforeigners will tend to…

Q: Should the economy’s current fragile recovery gather momentum, it is likely the Federal Reserve will…

A: Federal bank had responsibility of monetary policy so do it by open market operations.

Q: The most obvious way to hedge against ___________________ in currency conversions is to enter into a…

A: In the given question we are given 4 options regarding a statement and we need to choose correct…

Q: shock in a flexible exchan

A: A movement along the aggregate demand curve, such as a change in monetary policy under flexible…

Q: Other things being constant, if the U.S. real rate of interest exceeds that of its trading partners,…

A: The term real interest rate refers to the interest rate that has been adjusted for the effects of…

Q: ain why would a firm consider investing in a portfolio of foreign currencies instead of just a…

A: Firms always invest in different currencies while doing the business at international levels but…

Q: Fisher effect and Interest Rate Parity theories. If these theories exist, explain MNCs'…

A: There are different theories and models that help to predict the forward exchange rates based on…

Q: How may the domestic cost of capital for a foreign venture be adjusted to account for currency rate…

A: Country risk refers to a country's economic, political, and corporate hazards, all of which may…

Q: The U.S. Federal Reserve raises U.S. interest rates. Which of the following is a likely impact of…

A: Interest rates is the percentage of money charged against the principal amount by the lender of…

Q: Multinational Finance and investment Q2 c) Illustrate how to synthesize a forward hedging strategy…

A: Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: Short-run exposure to exchange rate risk is best illustrated by which one of the following?…

A: Exchange rate risk is the risk related to the uncertainty regarding the change in the price of a…

Q: What are the measures that can be set in place by Fast Moving Consumer Goods Companies to manage…

A: Fast moving consumer goods companies (FMCGs) like P&G, Unilever etc. sell their products in…

Q: An Australian mining company exports iron ore to other countries, such as China, South Korea and…

A: Derivatives refer to those financial instruments that derive their value from one or more…

Q: Exchange rates are highly volatile. Exchange rate fluctuations have an adverse effect on the…

A: The central bank is responsible for the monetary policy of the country. It fixes the exchange rate,…

Q: If a country’s par exchange rate is overvalued, what kind of intervention would that country’s…

A: The rate at which one currency can be exchanged for another is referred to as the exchange rate.…

Q: If the firm had exposures in currencies such as Brazilian Real or Indonesian Rupiah,what options…

A: Hedging acts as an insurance facility of the asset or security held as investment to reduce the…

Q: What risk is due to changes in the level of interest rate in the economy and may affect industries…

A: Change in level of interest rate in the economy affects industries at the same time and is a major…

Q: Identify an economic crisis or turning point that had significant impacts to certain industries in…

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…

Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

Which one of the following will have little if any, effect on a well-diversified portfolio?

terroristic attack on the U.S.
explosion at a distribution warehouse
sudden increase in market interest rates
increase in exchange rate

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Discuss and illustrate how the following barriers affect diversification of portfolios into international markets: Segmented markets Exchange rate controls Less developed capital markets Exchange rate risk
What do you know about arbitrage opportunity? Discuss with examples. Also, present a scenario of any type of international arbitrage if possible. If so, how would it be executed and how would market forces be affected? Does arbitrage opportunity destabilize foreign exchange markets?
What are the benefits of international portfolio diversification? Outline the arguments in favour of diversifying internationally than domestically. Discuss the possible reasons why securities are much less correlated across countries than within a country.
A U.S. exporting firm may use foreign exchange futures to hedge its exposure to exchange rate risk. Its position in futures will depend in part on anticipated payments from its customers denominated in foreign currency.a. In general, however, should its position in futures be more or less than the number of contracts necessary to hedge these anticipated cash flows? (Hint: Think about the firm's stream of cash flows extending out over many years.)b. What other considerations might enter into the hedging strategy?
Foreign exchange risk may be best defined as:a. the chance of value change in foreign exchange ratesb. the chance that the demand for your currency will dropc. the chance that exchange rates will be fixedd. the political risk posed by foreign governments
Excess funds can be used for domestic or foreign short-term investments. In some instances short-term securities on the international market will have higher interest rates than domestic interest rates and will therefore be pursued by an MNC. However, what are all the possible conditions that are expected to hold and for the MNC to consider : A) International Fisher Effect B) Exchange Rate Forecasting results C) Negative Effective Yield of the investment D) Interest Rate Parity E) Non-Diversified options for cash across currencies on the international market 1. C, D and E 2. A, B and D 3. A, B and C 4. A, B, C and D
If the firm had exposures in currencies such as Brazilian Real or Indonesian Rupiah,what options does the firm have in terms of hedging/foreign exchange risk management?
International Investments U.S.-based MNCs commonly invest in foreign securities. Assume that the dollar is presently weak and is expected to strengthen over time. How will these expectations affect the tendency of U.S. investors to invest in foreign securities?
Which of the following is not an argument for central bank intervention? Exchange rates are highly volatile. Exchange rate fluctuations have an adverse effect on the macroeconomy. The market knows better than economic policy makers what the appropriate level of the exchange rate is. Central bank intervention can smooth out fluctuations in exchange rates.
Other things being constant, if the U.S. real rate of interest exceeds that of its trading partners, we expect a. political instability in the United States. b. a worsening of the U.S. balance of payments. c. an appreciation of U.S. currency. d. that a "dirty float" will emerge.
Explain how exchange rate fluctuations affect the return from a foreign market measured in dollar terms. Discuss the empirical evidence on the effect of exchange rate uncertainty on the risk of foreign investment. Would exchange rate changes always increase the risk of foreign investment? Discuss the condition under which exchange rate changes may actually reduce the risk of foreign investment.
1. Explain the differences and similarities between Forward, Futures, andOptions. Then why can there be a Long Term Funding Deficit related to a company's cash flows? and Explain the meaning of international parity conditions, and why it can be used to predict exchange rates. and what is the meaning of foreign exchange exposure and types of foreign exchange exposure faced by multinational companies.