Please answer all question for an advance level course. Document Preview: Assignment 2 Please...

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Assignment 2 Please complete all of the following questions. 1) There has been a lot of discussion about adding international securities to a portfolio. Please discuss the positive and negative aspects of including international securities in your portfolio? 2) In attempting to model exchange rates, there is a lot of discussion about what factors should be included. Please discuss how the theory of purchasing power theorem (PPT) comes into play when modeling exchange rates. 3) Assuming a face value of $1,000 determine the yield on a 10 year zero coupon bond if the price is $695. Why were U.S. firms so interested in issuing zero coupon bonds in Japan? 4) What is the relationship between interest rate parity theorem (IRPT) and covered interest rate arbitrage? 5) What is the advantage of the adjusted net present value (ANPV) over the conventional net present value model? What is meant by the separation theorem and how does the ANPV violate this theorem? 6) What is meant by home bias when it comes to investing in international securities? 7) What happens to the cost of capital of capital if you start to issue securities internationally? 8) Please write a paragraph each about JP Morgan, Bank of America, NYSE – Euronext, Chubb, York Capital Management, and the Bank of England. Please try to stress their European operations.

Assignment 2 Please complete all of the following questions. 1) There has been a lot of discussion about adding international securities to a portfolio. Please discuss the positive and negative aspects of including international securities in your portfolio? 2) In attempting to model exchange rates, there is a lot of discussion about what factors should be included. Please discuss how the theory of purchasing power theorem (PPT) comes into play when modeling exchange rates. 3) Assuming a face value of $1,000 determine the yield on a 10 year zero coupon bond if the price is $695. Why were U.S. firms so interested in issuing zero coupon bonds in Japan? 4) What is the relationship between interest rate parity theorem (IRPT) and covered interest rate arbitrage? 5) What is the advantage of the adjusted net present value (ANPV) over the conventional net present value model? What is meant by the separation theorem and how does the ANPV violate this theorem? 6) What is meant by home bias when it comes to investing in international securities? 7) What happens to the cost of capital of capital if you start to issue securities internationally? 8) Please write a paragraph each about JP Morgan, Bank of America, NYSE – Euronext, Chubb, York Capital Management, and the Bank of England. Please try to stress their European operations. Assignment 2 Please complete all of the following questions. 1) There has been a lot of discussion about adding international securities to a portfolio. Please discuss the positive and negative aspects of including international securities in your portfolio? 2) In attempting to model exchange rates, there is a lot of discussion about what factors should be included. Please discuss how the theory of purchasing power theorem (PPT) comes into play when modeling exchange rates. 3) Assuming a face value of $1,000 determine the yield on a 10 year zero coupon bond if the price is $695. Why were U.S. firms so interested in issuing zero coupon bonds in Japan? 4) What is the relationship between interest rate parity theorem (IRPT) and covered interest rate arbitrage? 5) What is the advantage of the adjusted net present value (ANPV) over the conventional net present value model? What is meant by the separation theorem and how does the ANPV violate this theorem? 6) What is meant by home bias when it comes to investing in international securities? 7) What happens to the cost of capital of capital if you start to issue securities internationally? 8) Please write a paragraph each about JP Morgan, Bank of America, NYSE – Euronext, Chubb, York Capital Management, and the Bank of England. Please try to stress their European operations.

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Robert · Accepted Answer

Solution 1: This is one of the most difficult decision to make whether to invest in foreign 
markets or not. There are numerous reasons to do so. First thing would be the concept of 
diversification. The more markets added into the portfolio better the diversification since two 
stock markets can never move in sync with each other. Investing in foreign markets opens 
window to different opportunities. 
However there are risks involved in international transactions. The world part could be the 
foreign exchange risk. All the gains can just be drained if foreign currency devalues. Also 
investing in countries which are politically unstable could be dangerous in the future. Tax 
regulations in different countries differ making it more tedious to understand a situation.
Solution 2: Purchasing power is one of the many factors that can value exchange rate. 
Purchasing power takes into consideration the price of a basket of goods in various countries. 
Then the exchange rate is established based on the price. For example, the price of the basket in 
Country A is 250 and in another price happens to be 500. The exchange rate is simple 2 in this 
case. The basis for this theorem is “Arbitrage free price”. Value of a basket of goods should be 
equal in all currency.
Solution 3:  
Face value=$1000 
Bond price=$695 
Time period: 10 years 
Yield= (1000/695)^(1/10) = 9.7338% 
The reason that most of the US firms are looking to raise money from Japan is the reason that the 
economy of Japan is pretty healthy as compared to US and there are investors in Japan looking to 
park their money somewhere but they don’t have much securities.
Solution 4: Interest Rate Parity theorem (IRPT) takes about the foreign exchange rate with 
respect to the interest rate prevalent in two different countries.

Please answer all question for an advance level course. Document Preview: Assignment 2 Please complete all of the following questions. 1) There has been a lot of discussion about adding international...

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