Due to globalization investors have increasing opportunities to invest on international markets for diversification purposes. This thesis illustrates the added risks of investing internationally due to volatile exchange rates. The purpose is to analyze how a volatile exchange rate affect the risk and return of a portfolio invested in Sweden, when the investor is located in Japan, United Kingdom or the USA.To analyze the effect of exchange rate volatility the focus is on a portfolio consisting of …
Contents
1 INTRODUCTION
1.1 BACKGROUND
1.2 PROBLEM DEFINITION
1.3 PURPOSE
1.4 METHOD & LIMITATIONS
1.5 OUTLINE
2 THEORETICAL FRAMEWORK
2.1 PORTFOLIO THEORY
2.2 THE ELEMENT OF RISK
2.3 EXCHANGE RATES
2.4 HEDGING STRATEGIES
2.4.1 Option contracts
2.4.2 Futures and Forwards
3 EMPIRICAL ANALYSIS
3.1 PORTFOLIO CALCULATIONS
3.2 ADDING EXCHANGE VOLATILITY
4 ECONOMIC FORECASTING
4.1 PORTFOLIO FORECASTING
4.2 EXCHANGE RATE FORECASTING
5 ANALYSIS
6 CONCLUSION AND FURTHER RESEARCH
REFERENCES
Author: Stålstedt, Erik
Source: Jönköping University
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