1. You have an opportunity to invest in Australia at an interest rate of 8%. Moreover, you expect the Australian dollar (A$) to appreciate by 2%. Your effective return from this investment is:

a) 8.00%

b) 6.00%

c) 10.16%

d) 5.88%

e) None of the above

2. Consider an MNC that is exposed to the Taiwan dollar (TWD) and the Egyptian pound (EGP).    25% of the MNC’s funds are Taiwan dollars and 75% are pounds. The standard deviation of exchange movements is 7% for Taiwan dollars and 5% for pounds. The correlation coefficient between movements in the value of the Taiwan dollar and the pound is 0.70. Based on this information, the standard deviation of this two-currency portfolio is:

5.13%

2.63%

4.33%

5.55%

None of the above

3. Consider an MNC that is exposed to the Bulgarian lev (BGL) and the Romanian leu (ROL). 30% of the MNC’s funds are lev and 70% are leu. The standard deviation of exchange movements is 10% for lev and 15% for leu. The correlation coefficient between movements in the value of the lev and the leu is .85. Based on this information, the standard deviation of this two-currency portfolio is: (Do not roundup)

17.28%

13.15%

14.50%

12.04%

None of the above