Portfolio Diversification And Foreign Exchange Risk
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Managing Foreign Exchange Risk
Author | : Richard J. Herring |
Publisher | : Cambridge University Press |
Total Pages | : 254 |
Release | : 1986-04-30 |
Genre | : Business & Economics |
ISBN | : 9780521311205 |
A collection of essays about foreign exchange risk and how to cope with it.
The International Diversification Puzzle when Goods Prices Are Sticky
Author | : Mr.Charles Engel |
Publisher | : International Monetary Fund |
Total Pages | : 49 |
Release | : 2009-01-01 |
Genre | : Business & Economics |
ISBN | : 1451871597 |
This paper develops a two-country monetary DSGE model in which households choose a portfolio of home and foreign equities, and a forward position in foreign exchange. Some nominal goods prices are sticky. Trade in these assets achieves the same allocations as trade in a complete set of nominal state-contingent claims in our linearized model. When there is a high degree of price stickiness, we show that not much equity diversification is required to replicate the complete-markets equilibrium when agents are able to hedge foreign exchange risk sufficiently. Moreover, temporarily sticky nominal goods prices can have large effects on equity portfolios even when dividend processes are very persistent.
International Portfolio Diversification
Author | : Theodore Michael Johnson |
Publisher | : |
Total Pages | : 148 |
Release | : 1989 |
Genre | : Business enterprises |
ISBN | : |
Hedging Foreign Exchange Risk with Portfolio Insurance Strategies
Author | : James Conover |
Publisher | : |
Total Pages | : 278 |
Release | : 1989 |
Genre | : Foreign exchange futures |
ISBN | : |
This dissertation examines the use of portfolio insurance strategies to manage foreign exchange risk faced by investors domiciled in the United States. The investors manage their foreign exchange exposure by purchasing foreign exchange traded options in the futures market, the spot market, or in both markets. Option investment has been analyzed in the domestic stock option literature as part of portfolio insurance strategies. These portfolio insurance strategies examine the impact on the payoff pattern of adding options to a well-diversified portfolio of stock. The addition of foreign exchange call options to a portfolio that contains only the domestic riskless asset adds limited foreign exchange risk. Alternatively, the addition of foreign exchange put options to a foreign exchange holding limits foreign exchange risk. The degree of foreign exchange risk added depends on the relative quantities and terms of the assets and the options in the portfolio. This dissertation examines several hypotheses about the value of three alternative portfolio insurance strategies implemented in the spot market and in the futures market. This research addresses the following research question: which portfolio insurance method is optimal for an investor? The question is examined by testing hypotheses using paired historical returns. The returns are calculated using traded fiduciary calls, traded protective puts, and dynamic replication of fiduciary calls in the spot market and in the futures market. The tests of the hypotheses indicate that the mean returns for strategies in the spot market are greater than mean returns for strategies in the futures market for premium fiduciary calls and discount protective puts, but that futures protective put mean returns are greater than spot protective put mean returns for discount currencies. The fiduciary call strategy has greater mean returns than the protective put strategy in the spot market for premium currencies but the spot protective put strategy has greater mean returns for the discount currency ...
Cross-border Diversification in Bank Asset Portfolios
Author | : Claudia M. Buch |
Publisher | : |
Total Pages | : 56 |
Release | : 2004 |
Genre | : Bank investments |
ISBN | : |
Currency Diversification of Reserves and Sovereign Debt for Small Open Economies
Author | : Indi Rajasingham |
Publisher | : International Monetary Fund |
Total Pages | : 48 |
Release | : 1991-11-01 |
Genre | : Business & Economics |
ISBN | : 1451946082 |
An approach for minimizing risk through diversification of foreign exchange reserves and sovereign borrowings is proposed for central banks of small open economies. This approach--developed in a simple 2-period, 3-country framework--differs from past work in that the elements of exchange and price risk associated with trade and payments are considered in the portfolio allocation problem. The analysis shows that the net level of reserves and the primary transactions balance affect the optimal portfolio leading to deviations from the optimal allocation prescribed by the classical portfolio model. In addition, this result has implications for the currency composition of exchange market intervention transactions.