Question: Please write clearly or use the computer to type the answer so that I can see it clearly, thank you!!! You are managing a global
Please write clearly or use the computer to type the answer so that I can see it clearly, thank you!!!
You are managing a global fund denominated in British pounds. Your fund will sell $10 million worth of U.S. stocks within 4 months. The following information can be used to hedge currency risks.
| UK borrowing rate | 6% |
| UK deposit rate | 4% |
| US borrowing rate | 7% |
| US deposit rate | 5% |
| Current spot | 1.3357 1.3380 |
| 4-month forward |
|
Stock Y has an expected return of 10% and a standard deviation of 5%. Jason is indifferent between stock Y and a risk-free investment that offers 4% return. On the other hand, Paul is indifferent between stock Y and a risk-free investment that offers 7% return. Other things being equal, who is more likely to invest in a higher risk portfolio? Why?
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