An investment adviser in New York , is meeting with a client who wishes to diversify her portfolio by including more international investments. In order to evaluate the suitability of international diversification for the client, the adviser attempts to explain some of the characteristics of foreign exchange markets.The adviser points out that exchange rate regimes affect the performance of domestic economies as well as the amount of foreign exchange risk posed by international investments.The client and her adviser discuss potential investments in Hong Kong,Panama, and Canada. The adviser notes that the currency regimes of HongKong, Panama, and Canada are a currency board, dollarization, and a free float,respectively. The adviser tells his client that these regimes imply different degrees of foreign exchange risk for her portfolio.The discussion between the investment adviser and his client then turns to potential investments in other markets with different currency regimes. The adviser notes that some markets are subject to fixed parity regimes against the US dollar. The client asks whether a fixed parity regime would imply less foreign currency risk for her portfolio than would a currency board. The adviser replies:Yes, a fixed parity regime means a constant exchange rate and is more credible than a currency board.The adviser goes on to explain that in some markets exchange rates are allowed to vary, although with different degrees of foreign exchange market intervention to limit exchange rate volatility. Citing examples, he notes that mainland China has a crawling peg regime with reference to the US dollar, but the average daily percentage changes in mainland China/US exchange rate are very small compared with the average daily volatility for a freely floating currency.The adviser also indicates that Denmark has a target zone regime with reference to the euro, and South Korea usually follows a freely floating currency regime but sometimes switches to a managed float regime. The currencies of mainland China, Denmark, and South Korea are the yuan renminbi (CNY), krone (DKK),and won (KRW), respectively .

Based solely on the exchange rate risk the client would face, what is the correct ranking (from most to least risky) of the following investment locations? Explain your answer.

The advisers statement about fixed parity regimes is incorrect. Why do you think so?

Based on the advisers categorization of South Koreas currency regime which currency regime is being followed by Korea. Explain your answer