You have landed a coveted internship at a prestigious money manager in Singapore. For your first

assignment your supervisor has asked you to do the calculations needed to convince a valued client

on the benefits of international diversification. You have been assigned this task instead of the other

intern, because of your impeccable understanding of the principles of finance, especially that of

diversification and the role that of currencies play in international investments.

The data given to you in the following table contains the average

monthly returns and standard deviations for the S&P 500 index (in USD) and, EAFE index (in Local

currency and USD) for the period 1991 to 2012.

The correlation between S&P 500 and the EAFE (Local currency) over the entire period is 0.7927

(for local currency). The correlation between S&P 500 and the EAFE (USD) over the entire period is

0.7805.

Graphically depict the benefits the investor derives from investing in these market indices (S&P

500 and EAFE) assuming both are denominated in USD.