Tutorial 6 Questions
Eastbridge, a U.S. based company purchased 100 000 shares of Cambridge, a British company a year ago. Eastbridge has decided to sell all the shares in one month time to finance the company other operation. Eastbridge expects the share price of Cambridge to be £7.00 in one month time. To hedge against exchange rate exposure, Eastbridge sold £ forward contract at the forward rate of US$1.63 based on the expected share price of £7.00. a) What is the amount of £ to be sold in the forward contract?
b) How much will Eastbridge receive (in US$) if the share price of Cambridge is £7.00 in one month time?
c) How much will Eastbridge receive (in US$) if the share price of Cambridge is £6.00 and the spot rate is US$1.68 in one month time?
d) How much will Eastbridge receive (in US$) if the share price of Cambridge is £7.50 and the spot rate is US$1.60 in one month time?
e) What will happen if in one month time, share price of Cambridge drop to £5.00 and Eastbridge decided to hold on to the shares and sell at a later date when the share price is more favourable? Assume that the spot rate in one month time is US$1.68.
What types of risk are present in a portfolio? Which type of risk remains after the portfolio has been diversified?
How, according to portfolio theory is the risk of the portfolio measured exactly?
Discuss about the integration of market worldwide and its impact on international portfolio diversification.
Giri Lyer is a European analyst and strategist for Tristar Funds, a New York-based mutual fund company. Giri is currently evaluating the recent performance of shares in Pacific Wietz, a publicly traded specialty chemical company in Germany listed on the Frankfurt DAX. He gathers the following quotes:
| |Jan 1...