Kaiwa is a U.S.-based value fund considering investing overseas to benefit from international diversification. It is contemplating
Question:
Kaiwa is a U.S.-based value fund considering investing overseas to benefit from international diversification. It is contemplating investing in the South Korea country fund that offers an expected return of 13 percent for a level of risk measured by the standard deviation of its return equal to 11 percent. Kaiwa’s current portfolio offers a lower return of 9 percent for a level of risk of 7 percent.
a. Assuming a correlation coefficient of 0. 57 between the South Korea country fund and the U.S. Kaiwa fund, how would a repositioning of 33 percent of Kaiwa into the South Korea country fund impact its expected return and level of risk?
b. What would be the risk/return profile of a portfolio 66 percent invested in the South Korea country fund?
c. Sketch in a risk/return space the preceding two portfolio configurations as well as a portfolio 100 percent invested in Kaiwa and 100 percent invested in the South Korea country fund.
Step by Step Answer:
International Corporate Finance Value Creation With Currency Derivatives In Global Capital Markets
ISBN: 9781119550464
2nd Edition
Authors: Laurent L. Jacque