国际财务管理答案Chap015.doc

PAGE 1 IM CHAPTER 15 INTERNATIONAL PORTFOLIO INVESTMENTS SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. What factors are responsible for the recent surge in international portfolio investment (IPI)? Answer: The recent surge in international portfolio investments reflects the globalization of financial markets. Specifically, many countries have liberalized and deregulated their capital and foreign exchange markets in recent years. In addition, commercial and investment banks have facilitated international investments by introducing such products as American Depository Receipts (ADRs) and country funds. Also, recent advancements in computer and telecommunication technologies led to a major reduction in transaction and information costs associated with international investments. In addition, investors might have become more aware of the potential gains from international investments. 2. Security returns are found to be less correlated across countries than within a country. Why can this be? Answer: Security returns are less correlated probably because countries are different from each other in terms of industry structure, resource endowments, macroeconomic policies, and have non-synchronous business cycles. Securities from a same country are subject to the same business cycle and macroeconomic policies, thus causing high correlations among their returns. 3. Explain the concept of the world beta of a security. Answer: The world beta measures the sensitivity of returns to a security to returns to the world market portfolio. It is a measure of the systematic risk of the security in a global setting. Statistically, the world beta can be defined as: Cov(Ri, RM)/Var(RM), where Ri and RM are returns to the i-th security and the world market portfolio, respectively. 4. Explain the concept of the Sharpe performance measure. Answer: The Sharpe performance measure (SHP) is a risk-adjusted performance measure. It