Exercise 1 The table below contains the average returns, standard deviation of returns and correlation of returns with US index for different countries. All data are in US dollar terms. The US T-Bill rate is 3%. Determine which of these countries are suitable for a US based investor to diversify into. Show the necessary calculations. St Dev. % Country USA Return % 13.69 5.84 Correlation with USA 1.00 20.00 Canada 34.40 0.80 UK 27.11 25.00 34.76 0.75 0.72 0.59 0.57 0.33 France Italy Spain Russia South Africa Egypt Japan Singapore Hong Kong India 5.89 6.33 7.45 11.26 14.64 7.84 23.62 9.02 2.30 11.82 8.14 26.93 25.10 30.74 27.90 21.30 0.47 0.26 0.45 0.54 22.67 22.00 32.33 0.48 0.36 Exercise 2 The following table contains rate of returns in the US in US dollars and in Australia in Australian dollars. Also the USD/AUD exchange rate at the beginning of each year is given. Calculate the following: a) Average rates of returns and standard deviations to investors in each respective markets b) Average return and standard deviation to a US investor investing in Australia. c) Average return and standard deviation to an Australian investor investing in the US. d) Correlations between the two markets from US investor's point of view e) Correlations between the two markets from an Australian investor's point of view f) Rate of return and standard deviation to a US investor that invests 60% in the US and 40% in Australia. USA Year 2010 2011 2012 2013 2014 2015 2016 2017 -1.799% 15.905% 38.320% 13.395% 5.730% 7.503% 28.241% -3.884% AUSTRALIA -14.512% 14.603% 15.126% 1.099% -2.127% 6.985% 7.048% -6.903% USD/AUD 0.7024 0.897 1.0206 1.0217 1.039 0.8914 0.8161 0.7281 2018 2019 2020 35.226% -9.827% 18.378% -19.401% 0.7225 0.7801 0.7047 Exercise 1 The table below contains the average returns, standard deviation of returns and correlation of returns with US index for different countries. All data are in US dollar terms. The US T-Bill rate is 3%. Determine which of these countries are suitable for a US based investor to diversify into. Show the necessary calculations. St Dev. % Country USA Return % 13.69 5.84 Correlation with USA 1.00 20.00 Canada 34.40 0.80 UK 27.11 25.00 34.76 0.75 0.72 0.59 0.57 0.33 France Italy Spain Russia South Africa Egypt Japan Singapore Hong Kong India 5.89 6.33 7.45 11.26 14.64 7.84 23.62 9.02 2.30 11.82 8.14 26.93 25.10 30.74 27.90 21.30 0.47 0.26 0.45 0.54 22.67 22.00 32.33 0.48 0.36 Exercise 2 The following table contains rate of returns in the US in US dollars and in Australia in Australian dollars. Also the USD/AUD exchange rate at the beginning of each year is given. Calculate the following: a) Average rates of returns and standard deviations to investors in each respective markets b) Average return and standard deviation to a US investor investing in Australia. c) Average return and standard deviation to an Australian investor investing in the US. d) Correlations between the two markets from US investor's point of view e) Correlations between the two markets from an Australian investor's point of view f) Rate of return and standard deviation to a US investor that invests 60% in the US and 40% in Australia. USA Year 2010 2011 2012 2013 2014 2015 2016 2017 -1.799% 15.905% 38.320% 13.395% 5.730% 7.503% 28.241% -3.884% AUSTRALIA -14.512% 14.603% 15.126% 1.099% -2.127% 6.985% 7.048% -6.903% USD/AUD 0.7024 0.897 1.0206 1.0217 1.039 0.8914 0.8161 0.7281 2018 2019 2020 35.226% -9.827% 18.378% -19.401% 0.7225 0.7801 0.7047