EC249 Study Guide - Final Guide: Foreign Exchange Risk, Mutual Fund, Exchange Rate
Document Summary
Ec249 ch 11 international portfolio investment. Investment in international securities offer opportunities for diversification but increases foreign exchange risk. Holding a foreign security in itself is like holding a portfolio consisting of the security itself and the foreign currency. An increase in the value of a foreign asset can be negative due to exchange rate changes. Security return in pounds: r(pounds) = (110/110) - 1 = 1. 10 1. 1 + r($) = (1 + r(pound)(1 + r(ex)) r($) = r(pound) + r(ex) + [r(pound)r(ex)] Sharpe performance ratio (shr) = expected return minus the risk-free rate divided by risk. Measures the slope of the cml (capital market line). The higher the cml, the greater is the expected return per unit of risk. Correlation of canadian stock markets with the returns on the stock markets in other nations varies. The correlation of the u. s. stock market with canadian stock market 0. 60 to 0. 75 range.
