a) Which countries are part of the ‘BRICK’ or ‘BRIC’ group of countries and what type of investment markets do they represent? Select the most correct answer...
The BRIC countries include Brazil, Russia, India, and China. The BRIC Countries are low- growth developed market countries whose size and growth rates may make them some of the most important economies in the world.
The BRICK countries include Brazil, Russia, India, China, and Kazakhstan. The BRICK Countries are high-growth emerging market countries whose size and growth rates may make them some of the most important economies in the world.
The BRIC countries include Brazil, Russia, India, and China. The BRIC Countries are high- growth emerging market countries whose size and growth rates may make them some of the most important economies in the world.
b) Why does it make sense to invest in stocks and bonds issued by entities outside your home country? Select the most correct answer...
The basic portfolio management concept of Risk/Return states that diversification increases (which decreases risk) and the potential for returns is higher so overall risk- adjusted returns should be improved by investing across a wider base of countries.
Given the increasing integration and higher correlation between different countries and their economies, this tends to lead to improved diversification benefits in portfolios.
Given the increasing segregation and lower correlation between different countries and their economies as countries cut off trade to protect their own economic interests, this tends to lead to less diversification benefits in portfolios.
c) If an investor holds securities denominated in a foreign currency, are fluctuations in the currency always a negative factor (e.g. is the currency risk a pure form of risk or are there any mitigating factors?). Select the most correct answer...Currency risk is always a negative factor so investors should always look for and eliminate currency risk by hedging with derivatives.
Currency risk may be a negative or positive factor but investors can choose to eliminate currency risk by hedging with derivatives or accept the risk since currency exchange rates and fluctuations in exchange rates tend to even out over long periods of time.
Currency risk is always a negative factor but investors can eliminate this risk by investing only in stocks and bonds issued in their home country and this makes sense for the average investor.