Question
Ox Investment is an international asset manager from Australia. The fund invested significantly in the Japanese equity market over the last two years. The exchange
Ox Investment is an international asset manager from Australia. The fund invested significantly in the Japanese equity market over the last two years. The exchange rate was Yen120/AUD two years ago. The Nikkei Index has performed well relatively from 15000 to 16000 points. At the same time, the ASX200 stock market has increased from 5000 to nearly 7000 points. The current exchange rate is Yen140/AUD. A) Compute the rate of return on the investment in AUD terms. Show all the workings. (3 marks) B) Ox Investment's investors were disappointed with the fund's performance in the Japanese market, as it lags far behind that of the Australian market. They comment: "You should focus on identifying profitable domestic investments rather than venturing out to Japanese markets. Additionally, Yen is always negatively correlated with the global equity markets. The poor performance in the Japanese investments clearly shows that you don't understand this basic fact." Evaluate the comment. Hint: You should consider the return and risk in investing in Japanese assets. (4 marks)
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