Free CFA-Level-III Exam Braindumps (page: 50)

Mark Rolle, CFA, is the manager of the international bond fund for the Ryder Investment Advisory. He is responsible for bond selection as well as currency hedging decisions. His assistant is Joanne Chen, a candidate for the Level 1 CFA exam.

Rolle is interested in the relationship between interest rates and exchange rates for Canada and Great Britain. He observes that the spot exchange rate between the Canadian dollar (C$) and the British pound is C$1.75/£. Also, the 1-year interest rate in Canada is 4.0% and the 1-year interest rate in Great Britain is 11.0%. The current 1-year forward rate is C$1.60/£.
Rolle is evaluating the bonds from the Knauff company and the Tatehiki company, for which information is provided in the table below. The Knauff company bond is denominated in euros and the Tatehiki company bond is denominated in yen. The bonds have similar risk and maturities, and Ryder's investors reside in the United States.

Provided this information, Rolle must decide which country's bonds are most attractive if a forward hedge of currency exposure is used. Furthermore, assuming that both country's bonds are bought, Rolle must also decide whether or not to hedge the currency exposure.
Rolle also has a position in a bond issued in Korea and denominated in Korean won. Unfortunately, he is having difficulty obtaining a forward contract for the won on favorable terms. As an alternative hedge, he has entered a forward contract that allows him to sell yen in one year, when he anticipates liquidating his Korean bond. His reason for choosing the yen is that it is positively correlated with the won.
One of Ryder's services is to provide consulting advice to firms that are interested in interest rate hedging strategies. One such firm is Crawfordville Bank. One of the loans Crawfordville has outstanding has an interest rate of LIBOR plus a spread of 1.5%. The chief financial officer at Crawfordville is worried that interest rates may increase and would like to hedge this exposure. Rolle is contemplating either an interest rate cap or an interest rate floor as a hedge.
Additionally, Rolle is analyzing the best hedge for Ryder's portfolio of fixed rate coupon bonds. Rolle is contemplating using either a covered call or a protective put on a T-bond futures contract.

Calculate the expected return for both bonds if Rolle uses forward contracts to hedge the currency risk of the Knauff company bond and leaves the Tatehiki company bond unhedged.
Knauff bond Tatehiki bond

Mark Rolle, CFA, is the manager of the international bond fund for the Ryder Investment Advisory. He is responsible for bond selection as well as currency hedging decisions. His assistant is Joanne Chen, a candidate for the Level 1 CFA exam.
Rolle is interested in the relationship between interest rates and exchange rates for Canada and Great Britain. He observes that the spot exchange rate between the Canadian dollar (C$) and the British pound is C$1.75/£. Also, the 1-year interest rate in Canada is 4.0% and the 1-year interest rate in Great Britain is 11.0%. The current 1-year forward rate is C$1.60/£.
Rolle is evaluating the bonds from the Knauff company and the Tatehiki company, for which information is provided in the table below. The Knauff company bond is denominated in euros and the Tatehiki company bond is denominated in yen. The bonds have similar risk and maturities, and Ryder's investors reside in the United States.

Provided this information, Rolle must decide which country's bonds are most attractive if a forward hedge of currency exposure is used. Furthermore, assuming that both country's bonds are bought, Rolle must also decide whether or not to hedge the currency exposure.
Rolle also has a position in a bond issued in Korea and denominated in Korean won. Unfortunately, he is having difficulty obtaining a forward contract for the won on favorable terms. As an alternative hedge, he has entered a forward contract that allows him to sell yen in one year, when he anticipates liquidating his Korean bond. His reason for choosing the yen is that it is positively correlated with the won.
One of Ryder's services is to provide consulting advice to firms that are interested in interest rate hedging strategies. One such firm is Crawfordville Bank. One of the loans Crawfordville has outstanding has an interest rate of LIBOR plus a spread of 1.5%. The chief financial officer at Crawfordville is worried that interest rates may increase and would like to hedge this exposure. Rolle is contemplating either an interest rate cap or an interest rate floor as a hedge.
Additionally, Rolle is analyzing the best hedge for Ryder's portfolio of fixed rate coupon bonds. Rolle is contemplating using either a covered call or a protective put on a T-bond futures contract.

The hedge that Rolle uses to hedge the currency exposure of the Korean bond is best referred to as a:

Mark Rolle, CFA, is the manager of the international bond fund for the Ryder Investment Advisory. He is responsible for bond selection as well as currency hedging decisions. His assistant is Joanne Chen, a candidate for the Level 1 CFA exam.
Rolle is interested in the relationship between interest rates and exchange rates for Canada and Great Britain. He observes that the spot exchange rate between the Canadian dollar (C$) and the British pound is C$1.75/£. Also, the 1-year interest rate in Canada is 4.0% and the 1-year interest rate in Great Britain is 11.0%. The current 1-year forward rate is C$1.60/£.
Rolle is evaluating the bonds from the Knauff company and the Tatehiki company, for which information is provided in the table below. The Knauff company bond is denominated in euros and the Tatehiki company bond is denominated in yen. The bonds have similar risk and maturities, and Ryder's investors reside in the United States.

Provided this information, Rolle must decide which country's bonds are most attractive if a forward hedge of currency exposure is used. Furthermore, assuming that both country's bonds are bought, Rolle must also decide whether or not to hedge the currency exposure.
Rolle also has a position in a bond issued in Korea and denominated in Korean won. Unfortunately, he is having difficulty obtaining a forward contract for the won on favorable terms. As an alternative hedge, he has entered a forward contract that allows him to sell yen in one year, when he anticipates liquidating his Korean bond. His reason for choosing the yen is that it is positively correlated with the won.
One of Ryder's services is to provide consulting advice to firms that are interested in interest rate hedging strategies. One such firm is Crawfordville Bank. One of the loans Crawfordville has outstanding has an interest rate of LIBOR plus a spread of 1.5%. The chief financial officer at Crawfordville is worried that interest rates may increase and would like to hedge this exposure. Rolle is contemplating either an interest rate cap or an interest rate floor as a hedge.
Additionally, Rolle is analyzing the best hedge for Ryder's portfolio of fixed rate coupon bonds. Rolle is contemplating using either a covered call or a protective put on a T-bond futures contract.

The best hedges of the Crawfordville position and the Ryder portfolio are:
Crawfordville Ryder

Cynthia Farmington, CFA, manages the Lewis family's $600 million securities portfolio. Farmington and the Lewis family have agreed that they should hire a manager of alternative investments to manage a portion of the portfolio containing those assets. As part of the hiring process, they attempted to do the necessary due diligence. They assessed each manager's organization, the relative efficiency of the markets each manager has invested in, the character of each manager, and the service providers, such as lawyers, that each manager has used. In particular, they hoped to find a manager who has run an operation with low employee turnover, has invested in efficient and transparent markets, has sound character, and has utilized reputable providers of external services.
Eventually, Farmington hires the firm owned and managed by Bruce Carnegie, CFA, to diversify the Lewis portfolio into alternative investments. Carnegie will manage the portion of the portfolio containing these assets, and Farmington will continue to manage the remainder of the portfolio in a mix of approximately 50/50 high- grade stocks and bonds. Over the past ten years, the stock portion of the portfolio has closely tracked the S&P 500 and the bond portfolio has closely tracked a broad bond index.
Carnegie and Farmington meet to discuss how Carnegie should proceed. Farmington mentions that she and the Lewis family have agreed that the main goal of the alternative investments that Carnegie will manage should be to enhance the return of the overall portfolio. Diversification is only a secondary goal. In particular, Farmington says the Lewis family has expressed an interest in having the portfolio take positions in private equity. Farmington says that she envisions that Carnegie should take five positions of about 55 million each in distinct private equity investments, and each position should have about a 5-year horizon.
Farmington states that she has grown very dependent on benchmarks for her investing activities, and has concerns with respect to how she and Carnegie will monitor the success of the portfolio allocation in private equity. She has read that there can be a problem with the valuation of private equity indices in that they depend on price-revealing events like IPOs, mergers, and new financing. Thus, the repricing of the index occurs infrequently. Carnegie concludes that the solution is to follow the commonly accepted practice of creating their own private equity benchmark.
Farmington asks Carnegie to explain the choices that exist in the private equity market. Carnegie explains that there are two basic categories: venture capital funds and buyout funds. Farmington asks that Carnegie explain the pros and cons of one over the other. Carnegie states that buyout funds would probably have higher return potential, fewer losses, earlier cash flows, and less error in the measurement of the returns.
Carnegie comments that before he proceeds he will need to communicate with the clients. Farmington says this communication is not necessary because the Lewis family has largely followed her advice with very few questions. Even when the market has fallen and the portfolio has not done well, the Lewis family has not asked for any changes.

With respect to the criteria that Farmington used to choose a manager of alternative assets, which of the following is not a due diligence checkpoint? Finding a manager who: