Lecture 11

Question 1

International investing

Answer 1

Additional diversification

additional risks (currency, political, regulatory, accounting)

Question 2

Home bias

Foreign Bias

Answer 2

Investors invest more in their home countries

Investors invest less in countries, which are far from home (geographically, economically, culturally, informationally)

Question 3

Interest parity relationship

Answer 3

( 1 + r)*(F/E) = 1 + r

Question 4

How to invest internationally

Answer 4

Directly, Investment vehicle (ADR, Funds), Derivatives

Question 5

To passively diversify portfolio

Answer 5

Indicies weighting through

1. Market cap
2. Beta against us or domestic country
3. Country index standard deviation

Need expertise on currency and other factors

Question 6

International performance attribution

Answer 6

Currency selection
Country selection
Stock selection
cash/bond selection