Session 18: Portfolio Management: Capital Market Theory and the Portfolio Management Process
Reading 68: International Asset Pricing
LOS k: Define currency exposure, and explain exposures in terms of correlations.
Paul McCormack is a U.S. investor interested in valuing a Japanese security. Which of the following regression equations would be useful to McCormack in assessing the currency exposure of the Japanese security to changes in the dollar/yen exchange rate?
|
A) |
Local currency return = α + β (world market return). | |
|
B) |
Domestic currency return = α + β (world market return). | |
|
C) |
Domestic currency return = α + β (exchange rate movement). | |
To assess currency exposure, regress domestic currency returns against exchange rate movements [Domestic currency return = α + β (exchange rate movement)]. In this formulation, β would be an estimate of the currency exposure and would likely be called γ if used in the international capital asset pricing model. | 
发表于 2011-3-29 15:34
|