FIN 621 Chapter 11: CFIN 621- Chapter 11- International Portfolio.docx
6 Dec 2014
School
Department
Course
Professor
Document Summary
Adding foreign securities to a portfolio introduces considerations to portfolio management: world beyond ones own borders offers substantial opportunities for portfolio diversification o. Foreign securities are denominated in foreign currencies portfolio manager must contend with foreign exchange risk. Total return composite of the other two o r$=r +rx+r rx. Fully converted to dollar return on an equity investment in a foreign denominated security depends jointly on a grain or loss on the security together with the gain or loss on the foreign exchange transactions. End of period price (in pounds) determines the return on holding the british security: computed before currency conversation back into canadian dollars. Compute risk of the dollar denomination investment return as its standard deviation. Sd (r ,$) [var (ri)+var (r x)+2cov (ri ,r x)]1 /2. Covariance between the return on the shares and the exchange rate, 2cov (ri ,rx) o o o.
