Rebecca Taylor, an international equity portfolio manager, recognizes that an optimal country allocation strategy combined with an

Question:

Rebecca Taylor, an international equity portfolio manager, recognizes that an optimal country allocation strategy combined with an optimal currency strategy should produce optimal portfolio performance. To develop her strategies, Taylor produced the following table, which provides expected return data for the three countries and three currencies in which she may invest. The table contains the information she needs to make market strategy (country allocation) decisions and currency strategy (currency allocation) decisions.

a. Prepare a ranking of the three countries in terms of expected equity-market return premiums. Show your calculations.
b. Prepare a ranking of the three countries in terms of expected currency return premiums from the perspective of a U.S. investor. Show your calculations.
c. Explain one advantage a portfolio manager obtains, in formulating a global investment strategy, by calculating both expected market premiums and expected currencypremiums.

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...