FIN 621 Lecture Notes - Lecture 8: Purch Group, Canala, Random Walk
8 Jul 2016
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Ch. 1 foreign exchange risk: the risk that foreign currency profits may evaporate in dollar terms due to unanticipated unfavorable exchange rate movements. Suppose = 100 and you buy 10 shares of toyota for 100,000 (i. e. per share = 10,000 per share). One year later the investment is worth ten percent more in yen: 110,000. But, if the yen has depreciated to = 120, your investment has actually lost money in dollar terms. Political risk- sovereign governments have the right to regulate the movement of goods, capital, and people across their borders. For example: china"s decision to ban canola, on the basis that it is a genetically improved product; canada banned gasoline additive mmt in 1997. Multilateral agreements may reduce political risk for example, a nafta claim led to a settlement with ethyl, the manufacturer of mmt. In december 2009 the greek government revealed that its budget deficit would be 12. 7% rather than the 3. 7% previously forecast.
