1. A US investor is considering a portfolio of the US market portfolio and Chinese market portfolio. The information about this investment is given as follows.

• Portfolio weight: 30% in the US market portfolio, and 70% in the Chinese market portfolio.
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• The US market portfolio return (USD) is 8% per annum with a standard deviation of 17%, and the Chinese market portfolio return (Chinese RMB) is 13% per annum with a standard deviation of 23%.
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• The standard deviation of the rate of change in the USD/RMB exchange rate is 9%. The estimated correlation between the Chinese RMB return and the rate of change in the USD/RMB exchange rate is 0.25.
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• The correlation between the U.S. and Chinese market portfolios is 0.40.

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2. A. What is the standard deviation of the US investor's portfolio?
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4. B. What are the pros and cons of such an international investment compared with a pure US domestic investment?

Answer rating: 100% (QA)

B One of the advantages of such an investment is that it allows one to div... View the full answer