Ques–Here is the question
Wayne is contemplating a 25 million investment in the Japanese stock market, and is analyzing the potential risks of
investing in Japanese equities. He instructs Maurice Richard, an analyst in his office, to
analyze the local currency exposure of a Japanese equity index. Richard runs a
regression of returns on the index (measured in yen) versus changes in the Japanese yen
(measured in Canadian $ per yen). The results of Richard’s regression are as follows:
Rindex = 0.04 + (–0.3)(RC$/yen)
(0.08) (0.05)
RFR Expected %change in currency to canadian dollar
USA ($) 4% 1%
Canada (C$) 5% N/A
Japan (yen) 2% 2%
The answer is C$ 8,75,000 – here is how this is calculated (0.7* -5%) =25m* (-3.5%)= C$8,75,000.
when calculating the portfolio loss , why did we not calculate FCRP and multiplied it with Y(sensitivity ) to calculate the impact on the portfolio.
I think it should be -5% -(5%-2%)= -8% (FCRP ) * .7 (sensitivity )–.作者: joehogue 时间: 2013-4-12 23:01
FCRP - I believe you have calculated wrongly.
Japanese Yen has a +2% change with respect to Canadian $. So when you look with respect to the Canadian $ - Japanese Yen would have a -2% Appreciation (or a 2% depreciation).
FCRP = Currency Appreciation - (rdc - rfc) = -2 - (5-2) = -5%.作者: zephyranalyst 时间: 2013-4-12 23:01
here is the question
Based on these results, Lemieux concludes that a 5% depreciation of the yen will
cause a loss on his Japanese equity investment of approximately C$875,000.
Lemieux’s analysis is:
A. correct.
B. incorrect because the domestic currency sensitivity is 0.7.
C. incorrect because the loss will be approximately C$1,250,000.
