Is total risk of foreign asset more than domestic asset

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Reference no: EM13871689

1. Expropriation occurs when a host government confiscates the assets of a corporation doing business in that country. Can expropriation occur in other ways? Explain.

2. Suppose the systematic risk of a domestic investment is βi = ρiW (σi /σW), where ρiW = 0.4 is the correlation between domestic asset returns and world market returns, σi = 0.2 is the standard deviation of returns to the domestic asset, and σW = 0.10 is the standard deviation of the world market return. A comparable foreign asset has ρi'W = 0.3 and σi' = 0.3.

a. Is the total risk of the foreign asset more or less than that of the domestic asset?

b. Is the systematic risk of the foreign asset more or less than that of the domestic asset?

Reference no: EM13871689

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