Investment diversification strategy, Corporate Finance

Assignment Help:

The Brazilian economy in 2001 and 2002 had gone up and down. The Brazilian "real" (R$) had also been declining since 1999 (when it was floated). Investors wished to diversify internationally - into U.S. dollars for the most part - to protect themselves against the domestic economy and currency. A large private investor had, in April 2002, invested Brazilian "reais" (plural) R$ 500,000 in Standard & Poor's 500 Indexes [Standard & Poor's Depository Receipts or SPiDeRs] which are traded on the American Stock Exchange (AMEX: SPY). The beginning and ending index prices and exchange rates between the Brazilian "real" and the US dollar were as follows: 

                               April 10, 2002     April 10, 2003

                               Purchase       Sale

Share price of  "SPIDERS" (US dollars)

 

$               112.60

 

$                 87.50

Exchange rate (Reais/US $)

 

2.27

 

3.22

  1. What was the % return on the index fund for the year to a US-based investor? (USD$220,264.32 - USD$171,164.55) / USD220,264.32 = 22.3% The U.S investors had a capital loss = 22.3%
  2. What was the % return to the Brazilian investor for the one-year holding period?  If the Brazilian investor could have invested locally in Brazil in a 10% interest-bearing account, would that have been better than his/her American investment diversification strategy?

Related Discussions:- Investment diversification strategy

The pure-play approach, Hydra Multinational is a vast conglomerate firm inv...

Hydra Multinational is a vast conglomerate firm involved in a wide array of business ventures ranging from satellite radio to cat food.  One of its many divisions, a restaurant cha

Indifference point., why debt and preferred stock do not meet each other wh...

why debt and preferred stock do not meet each other while in determining indifference point...

IRR & WACC, I have been given 3 different types of projects. They state th...

I have been given 3 different types of projects. They state the IRR and how much the project will add. The question goes on to give a WACC with break points. The question wants

significant trends do you see in future for our industry, What significant...

What significant trends do you see in the future for our industry? Ans) You will be fully well-known with the economic situation as it relates to banking or how recent legislati

Bonds, you buy a car for ths 10000000 to be repaid in 3 years, with annua i...

you buy a car for ths 10000000 to be repaid in 3 years, with annua interest of 12%. preapare a loan amortization table

Do mergers encourage the formation of new banks, Do mergers encourage the f...

Do mergers encourage the formation of new banks? A: Yes. The rise in the number of new banks in the second half of the 1990s coincides with a surge in merger activity in the

Marginal cost of ?rm at equilibrium, Problem: Firm 1 produces cars and the ...

Problem: Firm 1 produces cars and the total cost of producing q cars is given as C(q) = 2q 2 + 5q. a) Assuming the ?rm operates in a perfectly competitive market. Write down th

How does depreciation affect cash flow, Define depreciation expense as it a...

Define depreciation expense as it appears on the income statement.How does depreciation affect cash flow? Accounting depreciation is the provision of an asset's initial cost ov

White collar crime, What do you think the future has in store in terms of w...

What do you think the future has in store in terms of white collar crime?Are there certain kinds of white collar crime discussed in this text that you believe will increase?Are the

Mergers had on fees assessed for retail bank services?, What effects have m...

What effects have mergers had on fees assessed for retail bank services? A: The impact is not clear. Market conditions and the level of competition often determine the cost for

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd