《国际投资》,期末复习,填空题,暨南大学.docx

2.Gap Filling Summary in each chapter Chapter 1 Currency exchange rates A direct exchange rate is the domestic price of foreign currency. An indirect exchange rate is the amount of foreign currency equivalent that one unit of the domestic currency purchases. Chapter 2 foreign exchange parity relations Interest rate parity is the relation that the forward discount(premium) equals the interest rate differential between the two currencies. Absolute purchasing power parity claims that the exchange rate should be equal to the ratio of the average price levels in the two economics. Relative purchasing power parity claims that the percentage movement of the exchange rate should be equal to the inflation differential between the two economics. Purchasing power parity implies that the ration of the end-of-period exchange rate to the beginning-of-period exchange rate equals the ratio of one plus the foreign inflation rate to one plus the domestic inflation rate. The real interest rate can be approximated for all countries by subtracting the expected inflation rate from the nominal interest rate. The international Fisher relation claims that real interest rates are equal across the world, and hence differences in nominal interest rates are caused by differences in national inflationary expectations. Interest rate differences approximately equal expected inflation rate differences if the international Fisher relation holds. Chapter 9 the case for international diversification International investing reduces risk because the correlations between country markets are less than 1. For two-asset portfolio of domestic and foreign assets, the expected portfolio return is the weighted average of the domestic expected return and the foreign expected return. The standard deviation is the square root of the quantity: the weight squared times the variance of the domestic asset plus the weight squared times the variance of the foreign asset plus twice the product of the weights times the c