NO.PZ2022123002000004
问题如下：
At his next meeting with
Slifer, Tubduhl proposes adding Chinese equities to the portfolio. The expected
return on Chinese equities is 14.0% with an expected standard deviation of
23.5% (both in local currency). The expected standard deviation of the U.S. dollar/Chinese
yuan exchange rate is 6.0% and the predicted correlation between Chinese equity
returns in local currency and exchange rate movements is 0.2.
Calculate the risk of Slifer’s investment in Chinese equities measured in U.S. dollar terms. Show your calculations.
选项：
解释：
Correct Answer:
The risk of an
investment in Chinese equities measured in U.S. Dollar terms is measured by the
standard deviation of returns, 25.4%.
This is calculated
as follows:
The variance of
the returns on foreign asset in U.S. Dollar terms = variance of foreign asset
in local currency + Variance of the exchange rate + (2 × correlation between
Foreign asset return and exchange rate movement × standard deviation of foreign
asset in local currency × standard deviation of the exchange rate)
As given in the
problem:
The standard
deviation of Chinese equities (in Yuan) = 23.5%
The standard
deviation of U.S. Dollar/Chinese Yuan exchange rate = 6%
The correlation
between foreign asset return and exchange rate movement = 0.2
Therefore, the
variance = (23.5%)2 + (6%)2 + (2 × 0.2 × 23.5% × 6%) =
644.7%2 and the Standard deviation = 25.4%.
the risk of Slifer’s investment in Chinese equities measured in U.S. dollar terms is 25.4%.
