A US investor wishes to invest in a British firm currently selling for GBP 40 a share. He has $10 000 to invest, and the current exchange is $2/GBP.

Required:

(a) How many shares can the investor purchase? (2 marks)

(b) Given share prices of GBP 35, 40 and 45, and exchange rates of $/GBP 1.80, 2 and 2.20 respectively, calculate the $ and GBP rates of return for each of the nine scenarios (three possible prices per share in GBP times three possible exchange rates. (16 marks)

(c) If each of the nine outcomes is equally likely, find the standard deviation of both the GBP and $ denominated rates of return. (16 marks)

(d) List and explain the main factors considered in international investing, and suggest ways or approaches in which these factors can be managed or mitigated. (2 marks)

(e) List and explain the benefits arising from international investing. What challenges may arise in international investing where the benefits you have described may not materialise.

(4 marks) [TOTAL: 40 MARKS]

SECTION B:

Investors and the Investment Process

QUESTION TWO

Most investors would agree with the notion that they want to earn as much money on their investments as possible.

1. List and explain the different investors that you may be aware of, and state and explain their investment objectives. (10 marks)
2. For the investor groups/classes identified in (a) above, what possible constraints do they have to contend with or face in their investment decision making process. List and explain the investor constraints they face.

(10 marks)

1. What is an investment policy? Explain the rationale behind the formulation of an investment policy. Why is it necessary, and what factors are taken into account in drawing up an investment policy? (5 marks)
2. Describe and explain the difference between active and passive investment policies.

(5 marks) [TOTAL: 30 MARKS]