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Topic: Business
Number of pages / Number of words: 15 / 3945
Essay's paper body

investors are investing more abroad because of U.S. government dollar depreciating policy to resolve huge trade deficit problem. When the U.S. dollar is weak in relation to other currencies, investors get benefit after they convert their investment returns back to U.S. dollars. The return of a foreign investment in US $ can be calculated from equation:

1 + R$ = (1+ RF) (1+ e) -------------- Equation 1

Where, R$ = Return of foreign securities in US $ after an investment period...


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dollar caused the returns of European stocks to be higher than the S&P 500 Index when calculated in U.S. dollars.

c) International risk diversification

From portfolio theory, risks of a portfolio can be reduced when adding more securities that are not perfectly correlated to the portfolio. The risk of a portfolio return can be calculated from equation:

Where, , are standard deviations of return from securities A, B

, are weights of securities A, B in the portfolio

is the correlation coefficient between return from securities A, B

From the equation, the less highly correlated the returns from the securities combined in a portfolio; the lower is the risk of the portfolio...


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