Finanzas 1.1
Chapter 3
3. Discuss why international diversification reduces portfolio risk. Specifically, why would you expect low correlation in the rates of return for domestic and foreign securities?
International diversification reduces portfolio risk because of the low correlation of returns among the securities from different countries. This is due to differing international trade patterns, economic growth, fiscal policies, and monetary policies among countries.
7. Some investors believe that international investing introduces additional risks. Discuss these risks and how they can affect your return. Give an example.
The additional risks that some investors believe international investing introduces include foreign exchange risk and country risk. For example, the domestic return on Canada bonds of 10.36% exceeded the U.S. return of 9.78%. The exchange rate effect of -2.19% lowered the Canadian dollar return after conversion to U.S. dollars to 8.17%. (Exhibit 3.2).
Chapter 15
4. Discuss some disadvantages of technical analysis.
The disadvantages of technical analysis are: (1) past price patterns may not be repeated in the future; (2) the intense competition of those using the trading rules will render the technique useless; (3) the trading rules require a great deal of subjective judgment; and (4) the values that signal action are constantly changing.
13. Explain the reasoning behind a support level and a resistance level.
A support level is a price range where considerable demand is expected, while a resistance level is a price range where a large supply is expected. Support and resistance levels exist due to the behavior of a number of investors who are closely monitoring the market and will trade quickly at attractive price levels. Specifically, a support level occurs after a stock has increased in price followed by a brief period of profit-taking at which time some investors who did not get in on the first round decide to take the opportunity to
3. Discuss why international diversification reduces portfolio risk. Specifically, why would you expect low correlation in the rates of return for domestic and foreign securities?
International diversification reduces portfolio risk because of the low correlation of returns among the securities from different countries. This is due to differing international trade patterns, economic growth, fiscal policies, and monetary policies among countries.
7. Some investors believe that international investing introduces additional risks. Discuss these risks and how they can affect your return. Give an example.
The additional risks that some investors believe international investing introduces include foreign exchange risk and country risk. For example, the domestic return on Canada bonds of 10.36% exceeded the U.S. return of 9.78%. The exchange rate effect of -2.19% lowered the Canadian dollar return after conversion to U.S. dollars to 8.17%. (Exhibit 3.2).
Chapter 15
4. Discuss some disadvantages of technical analysis.
The disadvantages of technical analysis are: (1) past price patterns may not be repeated in the future; (2) the intense competition of those using the trading rules will render the technique useless; (3) the trading rules require a great deal of subjective judgment; and (4) the values that signal action are constantly changing.
13. Explain the reasoning behind a support level and a resistance level.
A support level is a price range where considerable demand is expected, while a resistance level is a price range where a large supply is expected. Support and resistance levels exist due to the behavior of a number of investors who are closely monitoring the market and will trade quickly at attractive price levels. Specifically, a support level occurs after a stock has increased in price followed by a brief period of profit-taking at which time some investors who did not get in on the first round decide to take the opportunity to