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

Market Beta, The management of Nelson plc wish to estimate their firm’s equ...

The management of Nelson plc wish to estimate their firm’s equity beta. Nelson has had a stock market quotation for only two months and the financial management feels that it would

Explain internal rating system, Question 1: ‘An internal rating system ...

Question 1: ‘An internal rating system may incorporate supplementary customer information which is usually out of the reach of an external credit assessment institution.' Discu

Explain capital asset pricing model, Question 1: Compare and contrast t...

Question 1: Compare and contrast the Capital Asset Pricing Model with that of the Arbitrage Pricing Theory. Question 2: (a) Explain the concept of stock market efficien

Evaluate the total working capital, Question: a) NLTF= Mur150m; WCN= ...

Question: a) NLTF= Mur150m; WCN= 146m; Liquidity= 14m b) Balance Sheet has been solidified by loan from the Holding Company. Had the loan not been prov

Describe the capital asset pricing model, Question 1: (a) Explain clear...

Question 1: (a) Explain clearly two semi-strong form tests of the Efficient Market Hypothesis (EMH), one supporting and one rejecting the EMH. (b) Summarise the evidence in

WACC, The total book value of WTC’s equity is $40 million and book value pe...

The total book value of WTC’s equity is $40 million and book value per share outstanding is $12. The stock of WTC is currently selling for a price of $35 per share and the beta of

RISK, Calculate arithmetic returns and risk-premium of stocks. Describe the...

Calculate arithmetic returns and risk-premium of stocks. Describe the stock market behavior. Calculate expected return, variance and standard deviation for individual stocks and po

Homework Help, Look back to Section 13–1 (Table 13.2 on p. 329). Suppose th...

Look back to Section 13–1 (Table 13.2 on p. 329). Suppose that Ms. Macbeth’s investment bankers have informed her that since the new issue of debt is risky, debt holders will deman

Calculate the pv and npv, Suppose you take out a loan of $10,000, repayable...

Suppose you take out a loan of $10,000, repayable by five equal annual instalments. The interest rate is 10% per year. (a) How much do you need to repay per year to the nearest ce

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