Homework 8
Due April 3rd
1
Chap 9
1. Eurodollar futures contracts are traded on the CME with a size of one million dollars. The initial
margin is $540, and the maintenance margin is $400. You are a treasurer of a corporation, and
we are at April 1. You kn
Chapter 5
Equity: Markets and Instruments
Note: In the sixth edition of Global Investments, the exchange rate quotation symbols differ from previous
editions. We adopted the convention that the first currency is the quoted currency in terms of units
of th
Homework 3
2
1. An asset has a beta of 1.20. The variance of returns on a market index, m , is 225. If the
variance of returns for the asset is 400, what proportion of the asset's total risk is systematic,
and what proportion is residual risk?
2. Consider
Chapter 9
The Case for International Diversification
Note: In the sixth edition of Global Investments, the exchange rate quotation symbols differ from previous
editions. We adopted the convention that the first currency is the quoted currency in terms of
Homework 1
1. Over a period of time in the past, you noticed that the exchange rate between the Thai baht
and the the dollar changed considerably. In particular, the $:baht exchange rate increased from
25 to 30.
(a) Did the Thai baht appreciate or depreci
Chapter 2
Foreign Exchange Parity Relations
Note: In the sixth edition of Global Investments, the exchange rate quotation symbols differ from previous
editions. We adopted the convention that the first currency is the quoted currency in terms of units
of
Chapter 8
Alternative Investments
Note: In the sixth edition of Global Investments, the exchange rate quotation symbols differ from previous
editions. We adopted the convention that the first currency is the quoted currency in terms of units
of the second
Chapter 4
International Asset Pricing
Note: In the sixth edition of Global Investments, the exchange rate quotation symbols differ from previous
editions. We adopted the convention that the first currency is the quoted currency in terms of units
of the se
Chapter 3
Foreign Exchange Determination and
Forecasting
1. Applying expansionary macroeconomic policy, which results in higher goods prices and lower real
interest rates, will not reduce the balance of payments deficit. Higher prices will make the countr
5.2
A.
Linus is 18 years old now, and is thinking about taking a 5-year university degree.
The degree will cost him $25,000 each year. After he's finished, he expects to
make $50,000 per year for 10 years, $75,000 per year for another 10 years, and
$100,0
$
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Risk Management Irrelevance
Propositions
Alexander David
Financial Risk Management
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Basic Question
Can rm value be enhanced using risk management by
reducing
1. Its unsystematic (diversiable) risk?
2. Its systematic (undiversiable) risk?
Firm o
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Review of Variances and
Covariances
Instructor: Alexander David
Financial Risk Management
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Review of Varainces and Covraiances p.1
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Mean
$
The mean of a random variable X is also
written as E[X].
Property 1:
Discrete Case: X takes on the values cf
Chapter 7
Global Bond Investing
Note: In the sixth edition of Global Investments, the exchange rate quotation symbols differ from previous
editions. We adopted the convention that the first currency is the quoted currency in terms of units
of the second c
CourseSmart - Instructors - Print
User name: TED FU
1 4
Book: Global Investments, Sixth Edition
Page: 22
No part of any book may be reproduced or transmitted by any means without the publisher's prior permission. Use (other than qualified fair use) in v
Examples
1. Consider a U.S investor holding shares of the Swiss company Novartis, a leading pharmaceutical
rm. Assume a sudden depreciation of the CHF (FC), one CHF loses 1.25% of its dollar value.
the price of Novartis shares may react in dierent fashion
Chapter 1
Currency Exchange Rates
Note: In the sixth edition of Global Investments, the exchange rate quotation symbols differ from previous
editions. We adopted the convention that the first currency is the quoted currency in terms of units
of the second
Homework 2
1
Chap II
1. At a point of time, foreign arbitrageur noticed that the Japanese Yen to US.dollars spot exchange
rate was USD:YEN = 108. The three-month forward exchange rate was USD:YEN = 107.30.
The annualized three-month interest rates are 5.2
Homework 3
2
1. An asset has a beta of 1.20. The variance of returns on a market index, m , is 225. If the
variance of returns for the asset is 400, what proportion of the asset's total risk is systematic,
and what proportion is residual risk?
Solution
T
Homework 4
1. UBS AG is listed as an ADR on the New York Stock Exchange (NYSE) in dollars (USD). It is
also listed in Zurich in Swiss francs (CHF). Here are some quotes:
NYSE (in $) 107 1/2 - 108 3/8
Zurich (in CHF) 187-188
$:CHF (Swiss francs per dollar)
Examples
1. The shares of Volkswagen trade on the Frankfurt stock exchange. A U.S investor purchased 1,000
shares of Volkswagen at EUR 56.91 each, when the exchange rate was :
EU R : U SD = 0.9790 0.9795
Three months later, the investor receives a dividen
Examples
1. A portfolio manager has an allocation of 4 million Euros to French equity. The French portfolio
is well diversied and track the local CAC40 stock index. The manager believes that the French
market oers excellent returns prospects. However the
Homework 1
1. Suppose the market portfolio consists of weights w1 = 0.45, and, w2 =
0.55. in two stocks. Assume that the means are given by E [R1 ]= 10% and
E [R2 ]=20%, and the variances are Var[R1 ]=25%,Var[R2]=45%. Assume
that the correlation between t
Homework 2
All questions carry equal points.
1. (a) Suppose all distinct assets in the economy have a correlation of =
.02 with every other asset. Let the variance of each asset be 0.25,
and the investor holds an equally weighted portfolio of these assets
Solutions to Homework 2
1. (a) When an investors portfolio has N identical assets, each with a correlation of with every other asset, the variance of her portfolio is
2
M =
1 2 N 1 2
+
.
N
N
Setting the above quantity = 0, implies that the portfolio vari
Name: -
Sample True/False/Uncertain Questions
1. (25 points) For each of the statements below write true, false or uncertain and then provide a short explanation
for your answer.
(a) In winter rolling over futures contracts on heating oil will lead to an