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LOS l: Define currency exposure and explain exposures in terms of correlations.
Q1. 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).
Q2. A French investor holds a U.K. security. The investor has estimated the currency exposure in local currency terms to be 1.3. What is the currency exposure in domestic currency terms?
A) 2.3.
B) 1.3.
C) 0.3.
Q3. Suppose that a U.K. investor holds a U.S. security. The U.S. security has a negative correlation with changes in the value of the U.S. dollar in local currency terms. What does the negative correlation mean for the U.K. investor? The:
A) security exaggerates the impact of currency movements.
B) domestic currency γ is greater than one.
C) security provides a natural hedge against currency movements. | 
发表于 2009-4-2 14:00
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