The Capital Asset Pricing Model (CAPM)
View Post The Capital Asset Pricing Model (CAPM) is a fundamental financial model used to determine the expected return on an investment, considering its risk relative to the overall market. CAPM establishes a linear relationship between the expected return of an asset and its systematic risk, measured by beta. Key Elements of CAPM • Expected…
Read article Exchange and Country Risk: Return and Risk of Foreign Investment
Exchange risk and country risk are two fundamental sources of uncertainty that investors face when considering foreign investments. Both directly influence the expected return and overall risk profile of international projects and portfolio allocations. Exchange Risk (Foreign Exchange Risk) Exchange risk arises from fluctuations in currency exchange rates between a project’s foreign currency and the…
Read article Direct and Indirect Channels for International Portfolio Investment
International portfolio investment refers to purchasing financial assets such as stocks, bonds, or securities in foreign countries to diversify investments globally. This can be achieved through both direct and indirect channels, each with distinct characteristics and mechanisms. Direct Channels Direct channels involve investors directly purchasing foreign securities without intermediaries. Investors acquire financial assets listed on…
Read article Institutional constraints in foreign and international portfolio investments
Institutional constraints in foreign investment and international portfolio investment refer to the formal and informal rules, regulations, policies, and organizational frameworks that affect cross-border investment activities. These constraints shape how foreign investors—such as multinational corporations, institutional investors, and portfolio managers—navigate the challenges and opportunities of investing in foreign countries. They have a significant impact on…
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Understanding International portfolio investment
International portfolio investment refers to the practice of building a diversified investment portfolio by allocating capital across financial assets in multiple foreign countries. This strategy allows investors to gain exposure to both developed and emerging markets outside their home country, offering several potential benefits as well as risks. Key aspects of international portfolio investment include:…
Foreign Currency Discount Rates Computation
Foreign currency discount rates computation involves determining an appropriate discount rate to use when evaluating cash flows denominated in a foreign currency, typically for international project investments or valuations. The key to this computation is to reflect the risk profile, interest rate environment, and currency-specific factors related to the foreign currency and market. Basic Principle…
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