- CFA Level 2: Portfolio Management – Introduction
- Mean-Variance Analysis Assumptions
- Expected Return and Variance for a Two Asset Portfolio
- The Minimum Variance Frontier & Efficient Frontier
- Diversification Benefits
- The Capital Allocation Line – Introducing the Risk-free Asset
- The Capital Market Line
- CAPM & the SML
- Adding an Asset to a Portfolio – Improving the Minimum Variance Frontier
- The Market Model for a Security’s Returns
- Adjusted and Unadjusted Beta
- Multifactor Models
- Arbitrage Portfolio Theory (APT) – A Multifactor Macroeconomic Model
- Risk Factors and Tracking Portfolios
- Markowitz, MPT, and Market Efficiency
- International Capital Market Integration
- Domestic CAPM and Extended CAPM
- Changes in Real Exchange Rates
- International CAPM (ICAPM) - Beyond Extended CAPM
- Measuring Currency Exposure
- Company Stock Value Responses to Changes in Real Exchange Rates
- ICAPM vs. Domestic CAPM
- The J-Curve – Impact of Exchange Rate Changes on National Economies
- Moving Exchange Rates and Equity Markets
- Impacts of Market Segmentation on ICAPM
- Justifying Active Portfolio Management
- The Treynor-Black Model
- Portfolio Management Process
- The Investor Policy Statement
Company Stock Value Responses to Changes in Real Exchange Rates
The stock value of a company will be affected by the changes in the real value of its local currency based on how much exchange rate exposure it has. The response of a company’s stock value in different scenarios is discussed below:
Company earns material revenues in foreign countries or faces international competition domestically and has primarily domestic costs.
Negative correlation with movements in the real values of local currencies in the international currency markets.
Local currency exposure value is negative.
Company earns material revenues domestically, but costs are mostly incurred in foreign currencies.
Positive correlation with movements in the real value of local currencies in the international currency markets.
Local currency exposure value is positive.
Company earns revenues domestically and incurs costs domestically with no international firms.
Zero correlation with movements in the real value of their local currencies in international currency markets.
Local currency exposure value is zero.
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