This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
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....
View Full Document
This note was uploaded on 02/29/2012 for the course ECON 459 taught by Professor Phillips,k during the Winter '08 term at BYU.
- Winter '08