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 credit term "2/45 net 90" indicates, Ask questThe credit term "2/45 net...

Ask questThe credit term "2/45 net 90" indicatesion #Minimum 100 words accepted#

Mergers and acquisitions had on a customers access to branc, What effect ha...

What effect have mergers and acquisitions had on a customers access to branches? A: A branch closing which has resulted from a merger need not necessarily mean a lost relations

Management, i need a assignment on uk company to be submitted in my colleg...

i need a assignment on uk company to be submitted in my college how can u help

Replacement decision, Baobab rolling mills owns a lathe machine which was p...

Baobab rolling mills owns a lathe machine which was purchased 10years ago at sh. 75 million. The machine had an expected life of 15 yrs at the time it was purchased, and management

Evaluate the capital structure, Question: (a) According to Modigliani a...

Question: (a) According to Modigliani and Miller's Theory of Capital Structure (1963), companies should make maximum use of gearing. Briefly, describe factors which might pr

Valuing Stocks, From Finance.yahoo.com Part 1: Show the P/E ratio for each...

From Finance.yahoo.com Part 1: Show the P/E ratio for each company (as reported in finance.yahoo.com). Answer the question: Which of these two firms seems to be more of a "growth

Equity financing with debt financing, Seattle Health Plans currently uses z...

Seattle Health Plans currently uses zero debt financing.  Its operating income (EBIT) $1 million, and it pays taxes at a 40 percent rate.  It has $5 million in assests and because

Explain the traditional view of credit risk, The traditional view of credit...

The traditional view of credit risk relates to borrowers, firms, individuals, or financial institutions. Nevertheless, more and more specialized finance transactions deal with str

Impact on uncertainty in the global foreign exchange markets, Question 1: ...

Question 1: i) Each of the following statements has been put forward as an explanation of determinants of exchange rate: a) ‘the increase in the value of a currency is becau

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