Q1. a) Security returns are found to be less correlated across countries than within a country. Why can this be? 1 MARK b) Explain the concept of the world beta of a security. 1 MARK c) Explain how exchange rate fluctuations affect the return from a foreign market measured in dollar terms. Discuss the empirical evidence on the effect of exchange rate uncertainty on the risk of foreign investment. 1 MARK d) Would exchange rate changes always increase the risk of foreign investment? Discuss the condition under which exchange rate changes may actually reduce the risk of foreign investment. 1 MARK e) Evaluate a home countrys multinational corporations as a tool for international diversification. 2 MARKS