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标题: Reading 68: International Asset Pricing Los a~Q1-14 [打印本页]
作者: youzizhang    时间: 2009-4-2 13:35     标题: [2009]Session18-Reading 68: International Asset Pricing Los a~Q1-14

 

LOS a: Explain international market integration and segmentation and the impediments to international capital mobility.

Q1. Gerald Santana, CFA is the president and CEO of Dartmouth Ltd., a hedge fund management firm located in New York. The firm has been in existence for nearly fifteen years, and has shown consistently impressive returns since inception. Dartmouth has a wide variety of investments across a broad range of asset types that are based around the world. Members of the firm have a great deal of experience in assessing the currency exposure associated with investing in international markets. Due to a recent influx of new funds, Santana and his team have a substantial amount of uninvested cash and are currently evaluating several investment opportunities.

One potential investment for the fund is a 25 percent stake in a closely-held manufacturing company located in Ireland which produces textiles for export to the United States. Prices are set and paid for in U.S. dollars, but all costs of production are incurred in Euros. Santana is somewhat concerned about the potential currency exposure of the company, although he is quite familiar with the risks involved with investing in foreign firms with multinational operations. He intends to do further analysis of expected returns given various anticipated interest rate and exchange rate scenarios.

Additionally, Santana is considering placing some interim funds in some British bonds that appear cheap and are currently yielding a premium over other country’s comparable securities. In his opinion, inflation rates should remain reasonably stable over the next year and the real exchange rate between the two countries is expected to remain constant. The securities are highly liquid, so he does not anticipate any problem selling the bonds should he decide to liquidate the position prior to his anticipated one-year holding period.

Current spot rates: