QUESTION FOUR a. Describe International CAPM and explain how it differs with domestic CAPM (10 Marks) b. Mr Kinyatu has ksh. 5million that he intends to invest. He has received an advice that diversifying internationally is beneficial. He is considering two markets; the Kenya equity markets and the Uganda equity markets. The following information is provided Expected Return Expected Risk Kenya equity index (NSE) 14% 10% Uganda equity index (USE) 18% 12% Correlation coefficient (r) 0.46 Required i. Determine the return and the risk of the portfolio assuming that he wishes to invest 60% of her funds in the Kenya and 40% of her funds in Uganda equities (9 Marks) ii. Determine the minimum variance portfolio (4 Marks) QUESTION FIVE a. Explain the implication of Interest Rate Parity on the covered interest arbitrage (6 Marks) b. Consider the following quote Quoted Bid Quoted Price Ask Price Value of British pound in U.S. dollar $1.60 $1.61 Value of Malaysian ringgit (MYR)pound in U.S. dollar $ 0.20 $ 0.20 Value of British pound in Malaysian ringgit (MYR) MYR 8.10 MYR 8.20 i. Determine the gain for an investor with $10,000 using triangular arbitrage strategy. (10 Marks) ii. Explain the market formarket forces would occur to eliminate any further possibilities of triangular arbitrage (7 Marks) QUESTION SIX a. It is often said that as capital markets around the world become more and more integrated over time, the benefits of diversification will be reduced. Discuss (13 Marks) b. In the recent past, the Kenyan government has continued to raise funds from Eurobonds. Explain the reasons behind this trend and merits and demerits (10 Marks)