A. A Paris-based fund is considering raising 100 million to invest in London Stock Exchange for two years. The board of the fund is worrying that the may deprecate against by the end of two years. Explain how to use a forward contract and the money market to hedge the currency risk for this investment.

B. The value of the Heriot-Watt hybrid fund at the beginning of 2018 was 10 million. The fund employs a benchmark portfolio that invests 50% in the stock market and 50% in the bond market. At the beginning of 2018, the actual fund invested in line with the asset mix of the benchmark portfolio. In the middle of 2018, the fund raised an additional 5 million. The fund manager allocated 10% of the newly raised funds to the stock market and the remaining 90% to the bond market. At the end of 2018, the total actual fund value is 16 million (5.7 million in the stock market and 10.3 million in the bond market). Information on market returns is given below:

Period Stock Market Return Bond Market Return The f1st half year of 2018 7 % 3 % The 2nd half year of 2018 2% 1%

I) Calculate the benchmark portfolio value at the end of 2018.

II) Calculate the notional fund value at the end of 2018.

III) Comment on the fund managers overall performance.

\IV) Comment on the fund managers asset allocation skill. V) Comment on the fund managers stock picking skills for bonds and stocks.