What arguments are offered for investing in nondollar bonds?
What will be an ideal response?
There are three reasons given for investing in nondollar bonds. These are described below.
A first reason for investing in nondollar bonds concerns the notion that diversification maximizes return for a given level of risk. Modern portfolio theory states that the most efficient portfolio, the market or world portfolio, contains all assets and is perfectly diversified. This portfolio is risky but generates the highest possible return for its risk level. If investors want to achieve higher returns they must invest in this portfolio. If their preference is to receive higher returns then they must allocate a portion of their total investments to purchasing this risky world portfolio, which includes nondollar bonds.
A second reason (offered for a U.S. investor to invest in nondollar bonds) is the increased opportunities to find value that multiple markets provide. The argument is that nondollar bond investments—with the currency hedged—permits investment strategies based on interest rate changes in various countries. This provides additional dimensions to the actual investment decision or a broader range of investment choices.
A third reason (given for nondollar bond investing) is to make what is referred to as an "active play." This involves investing in nondollar bonds but also making a decision not to hedge the currency component.
You might also like to view...
Which of the following do manufacturers typically NOT use as a factor in deciding which mode of transportation to use for a product?
A) dependability B) cost C) accessibility D) responsiveness E) traceability
A text message can be used when it would be inappropriate for the receiver to answer a phone call
Indicate whether the statement is true or false
The competitive orientation to supplier relations is that the buyer and supplier are partners
Indicate whether the statement is true or false
ISC, Inc hired Judy to bribe a foreign government official. The bribe violates the Foreign Corrupt Practices Act. ISC gave Judy $100,000 in cash to make the bribe payment. Instead of paying the bribe, Judy kept all of the money. If ISC sued Judy to recover the $100,000, ISC:
a. will be able to recover the $100,000 since Judy breached the contract. b. will not be able to recover the $100,000 because the agreement was illegal. c. will be able to recover the $100,000 only if it can show that the bribe was a business necessity. d. will be able to recover only one-half of the money since ISC had "dirty hands."