Reference no: EM132949097

Airbus is concocting a diversified portfolio of $ 3,000 million. The board of directors is considering an initial investment in emerging market equities. The treasurer has made the following four comments:

1. "For an investor holding only developed market equities, the existence of stable emerging market currencies is one of severalpreconditions necessary for that investor to realize strong emerging market performance."

2. "Local currency depreciation against the dollar has been a frequent occurrence for US investors in emerging markets.US investors have consistently seen large percentages of their returns erased by currency depreciation. This is true even for long-term investors across emerging markets."

3. "Historically, the addition of emerging market stocks to a US equity portfolio such as the S&P 500 index has
reduced volatility; volatility has also been reduced when emerging market stocks are combined with an
international portfolio such as the MSCI EAFE index."

4. "Although correlations among emerging markets can change over the short term, such correlations show
evidence of stability over the long term. Thus, anemerging market portfolio that lies on the efficient frontier in one period tends to remain close to the frontier in subsequent periods."

Required:

Problem 1: State the relevant content of IFM for each of the underlying comment and assess whether each of the treasurer's comments is correct or incorrect.