Investment diversification strategy, Corporate Finance

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?
Posted Date: 2/23/2013 4:13:57 AM | Location : United States







Related Discussions:- Investment diversification strategy, Assignment Help, Ask Question on Investment diversification strategy, Get Answer, Expert's Help, Investment diversification strategy Discussions

Write discussion on Investment diversification strategy
Your posts are moderated
Related Questions
a)    The option to expand the capacity of a project can be viewed as owning what kind of option written on the underlying project?  Explain b)    The option to shutdown a proje

I have been given 3 different types of projects. They state the IRR and how much the project will add. The question goes on to give a WACC with break points. The question wants

Question: i) Compare and contrast the various types of fixed income securities. ii) ‘A new issue of callable bonds will generally carry a higher interest rate

XYZ plc has a Visitor Centre based in Perth.  The Centre houses exhibitions and educational resources to be used by schools, colleges and visitors.  It is a popular facility due to

Question : (a) Electronic banking can be defined as "the automated delivery of new and traditional banking products and services directly to customers through electronic, int

Your boss is trying to figure out when to replace an important piece of machinery in your main production facility.  The Siemens NR550, costs $5.45 million brand new and generally

For a large set of SKUs and in two successive selling seasons, we have compared the accuracy of three quantitative forecasting methods based on advance (preview) demand information

In this paper, we propose new forecasting methods based on advance demand information, and perform a case study to compare them to existing ones based on advance demand information

Do mergers result in layoffs? A: Overall employment in the banking industry actually has increased slightly over the last ten years. Some mergers do result in layoffs. However,

Question: (a) With the help of illustrative and numerical examples differentiate fully speculation and arbitraging in the context of foreign exchange. (b) Shirley, a trade