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Unformatted text preview: and a foreign risky assets.; i.e. d i r 1 and f i r 2 . Assume the forward exchange markets do not exist. Assume inflation is also risky. Write down the expected values, variances and covariance of both of these assets. What are the optimal weights under if d i and f i have identical means and variances, but covariances of d i , f i , & are zero: 3. Finally assume that the shares purchased must equal to the shares available. In this case the price of foreign exchange will adjust to make supply equal to demand. Holding the variance of the exchange rate appreciation fixed and assuming half the world portfolio is domestic and half is foreign, solve the above equations for the equilibrium value of the expected appreciation in exchange rates....
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 Winter '08
 Phillips,K
 Economics, Variance, Brigham Young University, optimal weights, Brigham Young University Department of Economics, optimal portfolio weights

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