Global Finance

3. (a) Using the following information calculate the portfolio (p/f) return and risk of a portfolio consisting of two assets: Stock Expected Standard P/f weight deviation (std) Toronto stock index (STX) 4% 3.5% 0.60 U.S. stock index (S&P 500) 5% 2% 0.40 Correlation (STX, S&P500) 0.25 return (b) Recalculate the portfolio expected return and risk by (i) changing the correlation to -0.25 and (ii) changing the weight to 0.40 for STX and 0.60 for S&P500 and comment on the differences in the results of (a) and (b). (20 points) Note: The covariance of two stocks A and B (cox (A, B) is equal to correlation coefficient (A, BLstd of A*std of B. (a) What is a Eurocurrency? What are "LIBOR" and "LIBID" rates? (b) What are the benefits of participating in the Eurocurrency market for banks? for customers? (10 points) 4