Investment advisors recommend risk reduction through international diversification. International investing allows you to take advantage of the potential for growth in foreign economies, particularly in emerging markets. Janice Wong is considering investment in either Europe or Asia. She has studied these markets and believes that both markets will be influenced by the U.S. economy, which has a 21% chance for being good, a 52% chance for being fair, and a 27% chance for being poor. Probability distributions of the returns for these markets are given in the accompanying table. Return Rates in Europe: Good, 10%; Fair, 4%; Poor, -3% Return Rates in Asia: Good, 24% ; Fair, 4%; Poor, -18% a. Find the expected value and the standard deviation of returns in Europe and Asia. (Round intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.)

Investment advisors recommend risk reduction through international diversification. International investing allows you to take advantage of the potential for growth in foreign economies, particularly in emerging markets. Janice Wong is considering investment in either Europe or Asia. She has studied these markets and believes that both markets will be influenced by the U.S. economy, which has a 21% chance for being good, a 52% chance for being fair, and a 27% chance for being poor. Probability distributions of the returns for these markets are given in the accompanying table. Return Rates in Europe: Good, 10%; Fair, 4%; Poor, -3% Return Rates in Asia: Good, 24% ; Fair, 4%; Poor, -18% a. Find the expected value and the standard deviation of returns in Europe and Asia. (Round intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Investment advisors recommend risk reduction through international diversification. International investing allows you to take advantage of the potential for growth in foreign economies, particularly in emerging markets. Janice Wong is considering investment in either Europe or Asia. She has studied these markets and believes that both markets will be influenced by the U.S. economy, which has a 20% chance for being good, a 50% chance for being fair, and a 30% chance for being poor. Probability distributions of the returns for these markets are given in the accompanying table. State of the U.S. Returns in Returns in Economy Good Fair Poor Europe 10% 6% -6% Asia 18% 10% -12% a. Find the expected value and the standard deviation of returns in Europe and Asia. (Round intermediate calculations to at least 4 decimal places. Round your final answers to 2 decimal places.) Expected value Standard deviation Europe Asia 3.20 % 5.00% % % b. What will Janice pick as an investment if she is risk…
Investment advisors recommend risk reduction through international diversification. International investing allows you to take advantage of the potential for growth in foreign economies, particularly in emerging markets. Janice Wong is considering investment in either Europe or Asia. She has studied these markets and believes that both markets will be influenced by the U.S. economy, which has a 24% chance for being good, a 42% chance for being fair, and a 34% chance for being poor. Probability distributions of the returns for these markets are given in the accompanying table. State of the U.S. Economy Returns in Returns in Good Europe 23% Asia 29% 7% -4% 13% -16% Fair Poor a. Find the expected value and the standard deviation of returns in Europe and Asia. (Round intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.) Europe Asia Expected value % % Standard deviation % % b. What will Janice pick as an investment if she is risk neutral? O…
I need help matching the defintions with the words, thank you.
An e-commerce company based in the United Kingdom is planning to launch a new market in Australia and is concerned about potential volatility in the Australian dollar. Which hedging strategy(s) would be suitable to manage the currency risk in this scenario? Choose all that apply. Purchasing a call option on the Australian dollar Selling Australian dollars forward against the British pound Purchasing a put option on the Australian dollar
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.
Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB is currently expanding its operations to include proprietary trading and is reviewing its risk management policies. DB uses Value at Risk (VaR) models to monitor its risk exposures. DB`s current portfolio of currencies contains only long positions. The volatility of the currencies in its portfolio has recently increased, and Wila expects volatility to remain high over the next several quarters. As a result, she has hedged the portfolio using currency options. Required Explain value at Risk as a measure of market risk and the key elements involved when interpreting VAR. Outline the three methods used to calculate VAR. For hedging purpose, the client is of the opinion that the delta normal method is the most appropriate method. Advise the client on the appropriateness of the method. Consider a position consisting of a K200,000 investment in Asset A and a K300,000 investment in Asset B. Assume…
Relative inflation rates affect interest rates, exchange rates, the overall economic health of a country, and the operations and profitability of multinational companies. Consider the following statement: If companies borrow from countries with low interest rates, the potential gains from the interest savings will likely be multiplied when the lending country's currency appreciates. Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preceding statement is valid or invalid. The statement is invalid, because as the currency of the lending country appreciates, it becomes more expensive for the borrowing company to repay the initial loan. The statement is valid, because as the currency of the lending country appreciates, it becomes cheaper to repay the initial loan and thus increase savings. If companies borrow from countries with low interest rates, the potential gains from the interest savings will likely be by the…
III. A globally diversified portfolio faces a lower market risk than a domestically diversified portfolio. Examine the above statement with reference to possible benefits of international diversification. Use an appropriate graph to illustrate.
Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up inSilicon Valley. As a British resident, you are concerned with the pound value of your U.S. equityposition. Assume that if the American economy booms in the future, your equity stake will be worth $1, 000, 000, and the exchange rate will be $1.66 per pound. If the American economy experiences arecession, on the other hand, your American equity stake will be worth $500, 000, and the exchangerate will be $1.86 per pound. You assess that the American economy will experience a boom with a70 percent probability and a recession with a 30 percent probability. Required: a. Estimate yourexposure to the exchange risk. b. Compute the variance of the pound value of your American equityposition that is attributable to the exchange rate uncertainty. c-1. How would you hedge thisexposure? c-2. If you hedge, what is the variance of the pound value of the hedged position?
Which of the following factors will NOT increase the value of a currency in foreign markets? A. High inflation in that country B. High interest rates in that country C. A positive balance of payments with that country D. A strong stock market rally in that country
Give an example of how the competitive environmentinfluences prices. What about government regulationand consumer trends? What are some ways the globalenvironment can influence a firm's pricing strategies?
An international project can reduce a firms overall risk as a result of international diversification benefits.” Evaluate the statement.

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