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周教授CFA金融课程:2019/2020年CFA一二三级系列课程

Portfolio Management and Wealth Planning【Session17 - Reading 42】

FQ global fund is a US fund with investments in European equity and was valued at 102 million as of January 1, 2006. During the first quarter of 2006, dividend income paid out by the fund was 2.3 million. The fund was valued at 105.10 million as of March 31, 2006. During the quarter, the Euro appreciated by 2% against the U.S. Dollar. What is the dividend yield on the fund in local currency?
A)
3.10%.
B)
2.25%.
C)
3.04%.



Dividend yield in local currency = 2.3/102 = 2.25%.

FQ global fund is a US fund with investments in European equity and was valued at 102 million as of January 1, 2003. During the first quarter of 2003, dividend income paid out by the fund was 2.3 million. The fund was valued at 105.10 million as of March 31, 2003. During the quarter, the Euro appreciated by 2% against the US Dollar. What is the total return on the fund in local and home currencies?
A)
5.29%; 7.40%.
B)
5.10%; 7.10%.
C)
3.10%; 5.10%.


Total return in local currency = Capital gains yield +Dividend yield

= [(105.10/102) – 1] + (2.3/102)

3.04 + 2.25 = 5.29%

Total return in home currency = Capital gains yield + Dividend yield + Currency effect


Currency effect = ej × (1 + CGj + Dj) = 0.02 × (1 + 0.0304 + 0.0225) = 0.0211 or 2.11%


Total return in home currency = 5.29% + 2.11% = 7.40%

TOP

FQ global fund is a US fund with investments in European equity and was valued at 102 million Euros as of January 1, 2003. During the first quarter of 2003, dividend income paid out by the fund was 2.3 million Euros. The fund was valued at 105.10 million Euros as of March 31, 2003. During the quarter, the Euro appreciated by 2% against the US Dollar. What is the capital gains yield on the fund in local currency?
A)
3.04%.
B)
5.10%.
C)
3.10%.



Capital gains yield in local currency = (105.10/102) – 1 = 3.04%.

TOP

Which of the following is the most likely method of hedging currency risk?
A)
Selling a futures currency contract.
B)
Selling a forward currency contract.
C)
Purchasing a forward currency contract.



Currency risk can be hedged using either forward or futures currency contracts with the most prevalent method being selling a forward contract. If a manager purchased a foreign asset then they are long the foreign currency and if they believe it will depreciate in the future then by selling a forward contract on the depreciating foreign currency this will result in a gain on the short position.

TOP

Which of the following would be considered an “active” currency management technique?
A)
A portfolio manager under-weights the amount invested in European stocks compared to the benchmark.
B)
A U.S. portfolio manager purchases several foreign stocks paying euros equal to the amount in the benchmark.
C)
A French portfolio manager sells a forward contract in dollars equal to the amount of the portfolio invested in the U.S.



Passive and active currency management can mean different things depending upon the context in which they are used. “Passive” currency management can be where a portfolio manager simply does not take a position on the currency movement and accepts whatever appreciation or depreciation of the currency in the portfolio. If their asset allocation differs from the benchmark this would be considered “active” currency management even though they may claim to be passively managing the currency. Thus passive currency management can be represented by not hedging the currency risk by investing in the foreign market in the same amount as found in the benchmark or hedging the currency risk of an investment by selling forward or futures contracts in the same amount as invested in the foreign asset.

TOP

Which of the following statements is most correct regarding forward currencies?
A)
Selling a forward currency is equivalent to receiving the foreign currency risk free rate and owing the domestic currency risk free rate.
B)
A forward currency purchase is equivalent to paying the foreign currency risk free rate and receiving the domestic currency risk free rate.
C)
Purchasing a forward currency is equivalent to being long in the foreign currency cash and short in the domestic currency cash.



A forward currency purchase is equivalent to being long in the foreign currency cash receiving the foreign currency risk free rate and short in the domestic currency cash paying the domestic currency risk free rate.

TOP

When the value of the assets to be hedged increases the amount hedged:
A)
does not need to be adjusted.
B)
can be decreased.
C)
should also be increased.



The hedged amount needs to be periodically adjusted to reflect changes in the asset value so as the asset value increases (decreases) the amount hedged would also need to be increased (decreased).

TOP

Which of the following is the most likely reason to hedge the foreign currency? The portfolio manager:
A)
believes movement in the currency may produce a loss relative to the benchmark.
B)
wants to increase the currency exposure to certain currencies.
C)
has no views about the currency but believes certain markets look more attractive than others.



Increasing exposure to certain currencies or markets are reasons NOT to hedge the currency but if a portfolio manager believes the currency movement by itself will cause a loss relative to the benchmark this would be a reason to hedge the currency risk.

TOP

If a separate currency overlay manager exists how is the portfolio asset manager’s performance evaluated?
A)
The portfolio asset manager and the currency overlay manager are evaluated together based on the total return of the asset.
B)
The portfolio asset manager is evaluated based on the return of the underlying asset without taking into consideration any appreciation or depreciation of the currency.
C)
The portfolio asset manager’s performance is evaluated based on the percentage of the total return due to the asset return.



If a separate currency overlay manager exists then the portfolio asset manager is evaluated net of the currency return. In other words the asset manager is judged based only on the increase or decrease of the underlying asset value without considering the change in value of the asset’s currency.

TOP

What kind of currency management is represented by a portfolio that closely tracks the benchmark but neither is hedged against currency risk?
A)
Active currency management.
B)
No currency management.
C)
Passive currency management.



When a benchmark is present then passive and active currency management are measured relative to the benchmark. Any deviation from the benchmark currency results in active currency management. If the portfolio is invested in the same assets as the benchmark this represents passive currency management.

TOP

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