International Portfolio Diversification and Asset pricing Model

An International Financial Management

International Financial Management

London School of Business &

FinanceNabeel Ahmed Khan

A4028490

Nabeel Ahmed Khan ID A4028490 Page 1


PART A

Table of Contents

Executive Summary .....................................................................................3

Introduction...............................................................................................................................4

International Portfolio Diversification and Asset Pricing Model ....................................... 5

World Market Capitalization and shifting in U.S………………………………………….6

Internatnional diversification barriers....................................................................................9

International CAPM.................................................................................................................9

CAPM and ICAMP Limitation……………………………………………………………...14

Evaluatoion of Foreign Bond..................................................................................................16

Conclusion…………………………………………………………………………………….17

References & Bibliography.........................................................................22



Executive Summary

This report reflects the various factors, applications and limitations need to be considered by portfolio manager

when diversifying the investment in domestic and international market to gain the maximum return in order to

improve the value of an organisation and also the wealth of shareholders.

The investment portfolio fall under three managers and consists of 60% stocks and 40% bond. The Bank has a

total investment portfolio of 25$ billion. However, only 15% are allocated as a foreign investment. This task has

been done with the help of the various relevant theories of portfolio diversification and the application of

ICAMP and CAPM. At the time of diversifying investment and the manager need to apply CAPM, may have to

consider the limitation of both ICAMP and CAPM application which is inserted in this report.

Furthermore we have made an evaluation of the opportunity of available to the investment bank between the

allocation Euro bond and U.S bond, with help of calculation. Our findings are that we should encourage

international diversification according to the theory of CAPM.



Introduction

There was a time when investors treated domestic market as secure barriers. Times have changed now

everything is globalizing so the number of investors increasing accordingly. U.S investors are buying foreign

stock & bond and foreign investors are investing in U.S market. Investing in an international market propose

several advantages. As a U.S prospective more than half of the world stock market capitalization is outside U.S

companies. Over the past few years’ foreign investment has been increasing very fast then international trade or

world economic respectively.

According to the United States history, investment banking received a boom during the American Civil War.

When banking houses sold millions of dollars’ worth of government bonds to large numbers of individual

investors to finance the war. This obvious the first mass-market securities sales operation, and that practice

continued later in the 1800s to finance the development of the coast-to-coast railroads. Now Investment banks

earned an increasing amount of their profits from registered trading. Advancement in computer technology also

helps banks to use more reliable model driven software to perform trades and make a profit accordingly

changing in market conditions. In early 1990s U.S continuous to be a debtor nation in world financial records,

inviting more long term internal investments as compare to external investments. Both direct investment and

internal foreign portfolio continued to rise in an uneven manner. U.S debtor nation position was not like to that

of many developing nations. By that time all U.S foreign obligations were in the US dollar currency. In the late

1990s, Internet and with the help of electronic media, the world economy became truly globalize. In the

technology of world speed which allowed monies to move from one stock market to another in a second which

lead to increase foreign investment.



World Market Capitalization and shift in U.S

Source: www.MSCI.com (Morgan Stanley Capital International (1970); Standard & Poor's/Citigroup (2010). The market cap shares for 1970 are based on weights in the MSCI World Index.)

|Above projected chart show that market capitalization outside the world and how U.S capitalization reducing

by the time. Trend has changed now in 2010; the foreign market shows that 58% market capitalization is

outside U.S. And Projected in 2030 it will be reduce from 42% to 34 in U.S.

International Portfolio Diversification and Asset pricing Model

Over the last three decades, international portfolio diversification has been the vital feature of global capital

markets. Several possible benefits have made by investors to internationalize their portfolios in the global

market. Investors in mostly countries have the access in international market to invest in financial instruments,

however they choose to invest mostly in their own domestic market. Wise investors know that diversifying

across domestic industries lead to have a low level of risk for a given level of expected return. It is well know

that investing in a stock market is risky whether in domestic market or foreign market. But both practitioners

and theoreticians recommended to have a well-diversified portfolio to reduce the risk attach with the

investment.


http://www.MSCI.com/


For example, a fully diversified U.S portfolio is only about 27% as risky as a typical individual stock. Put

another way, about 73% of the risk associated with investing in the average stock can be eliminated in a fully

diversified U.S portfolio. Ultimately, though the advantages of such diversification are limited because all

companies in a country more or less have the same cyclical economics fluctuations. Through international

diversification i.e. by diversifying across nations whose economic cycles are not perfectly in phase, investors

should be able to reduce still further the variability of their return. In other words, risk that is systematic in the

context of the U.S economy may be unsystematic in the context of global economy. For example, an oil price

shock that hurts U.S economy helps the economics of oil-exporting nations, vice versa. Thus just as movements

in different stock partially offset one another in an all U.S portfolio so also do movements in U.S and non U.S

stock portfolio cancel each other out somewhat. (Alan C. Shapiro, 2003)

Investing internationally will increase the chances of better return and less risk because of

Domestic markets have large difference in return and less risks associate as compare to foreign market.

Investment in emerging and developed countries



Different foreign markets have comparatively low correlations with each other because of different

cycle economic fluctuations. Such as political risk which are likely to be localized with in national level.

Future is unsure and if you rely on one source of return you are likely to have a more risk together. Due to this

reason normally investors are risk averse they hardly hold investment in isolation. Therefore investing in U.S

domestic portfolio with different stocks off setting each other, so this is how it will also offset U.S and Non U.S

stock movement when having international diversified portfolio. For achieving a better return by trade off

investing internationally.

Using a Capital pricing model, the technique adapted by CAPM is to measure systematic risk, usually referred

as beta (β), as with any index we need to establish some base points and then other observations will be

calibrated around these points, the two base points are as follows:

The risk free security

Risk free securities normally have no risk, therefore no systematic risk attached with it, such as gilts have a beta

value zero.



The market portfolio

This show the vital diversification of international market thus has only systematic risk.

Let assume beta value 1.00 for the market portfolio and this will show the average systematic risk. Both two

points are show below in the graph

Return

Rm Security market line (SML)

Rf

1.00 β Systematic Risk

Source:http://www.globusz.com/ebooks/Valuation/00000024.htm

Security market line shows the relationship of systematic risk and return. In Graph clearly see that the higher

the return, higher the systematic risk attached. The equation of SML is

Rj = Rf +βj (Rm – Rf )

If a company made some investment in some project some would be well and badly. But when you see as a

whole portfolio average return would be expected. In practice whole diversification will not be possible. But

significant diversification of world portfolio could be achieved by the following technique.

Investment in different companies and in different country

Do investment in big Multinational companies

Allotment of investment trust which is globally diversified.


http://www.globusz.com/ebooks/Valuation/00000024.htm


Company should do own assessment of their investment portfolio when set a cost of capital, If the markets are

divided, might be investment in domestic company are not profitable that are suitable for foreign market or

multinational company because the cost of capital in the foreign market is relatively lower.

International Diversification Barriers

Despite the demonstrated benefits to international diversification, these benefits will be limited because of

barriers to investing overseas. Such barriers do exist. They include legal informational and economic

impediments that serve to server to maintain national capital markets, deterring investors seeking to invest

abroad. The lack of liquidity, the ability to buy or sell securities efficiently is a major obstacle on some overseas

exchange. Other barriers include currency controls, specific tax regulations, relatively less developed capital

markets abroad, exchange risk, and the lack of readily accessible and comparable information on potential

foreign security acquisitions. The lack of adequate information can significantly increase the perceived riskiness

of foreign securities, giving investors an added incentive to keep their money at home. (Alan C. Shapiro, 2003)

Investors always can buy foreign securities from their domestic market. One problem in buying foreign stocks

is that a brokerage commission is very high. And also have to face complications of foreign tax and the

irritation of converting dividend into local currency.

International Capital Pricing Model

The international capital Asset pricing model (ICAPM) suggests that international investors should have stock

of each country to have a world diversified market portfolio. This model states that all countries in a world

would get a the same portfolio without any information cost or any other cost and diversify their investment in

other countries to the size of their financial market. In this regard, Global financial institute such as Morgan

Stanley Capital International (MCSI) All world index, Standard & poor global index are commonly used by

investors.

Suppose that International capital market fully incorporated market like domestic market.

A company involved in international investment will expect additional risks which are:



Currency Risk

Political Risk

These types of risk mostly are identified as unsystematic risk and can be diversified away by holding the

international diversify portfolio.

For Example, a U.S Based Company can reduce more risk by investing in other countries. Part of the systematic

risk for domestic company is in fact unsystematic for an international market.

So the international CAPM equation would be:

Rj = Rf + Bw (Rw - Rf)

Where Bw is a measure of world systematic risk that is how the return on investment correlation with the whole

world market. So the investors can get the advantage from maximum diversification through investing in the

economy of world of all securities. In a real world is impossible to hold a share of the world portfolio but

significant international diversification can achieve by direct holding in foreign companies and investing in

multinational companies.

CAPM

It can be used to calculate a cost of equity and incorporate risk. The CAPM is based on a comparison of the

systematic risk of individual investment with the risk of all shares in the market.

Whenever an invest

ri = rf + β i (rm – rf )

Where, ri = equilibrium expected return for asset i

rf = rate of return on a risk – free asset, usually measured as the yield on a

U.S government Treasury bill or Treasury bond

rm = expected return on the market portfolio consisting of all risky asset

β I = is the beta factor of the individual security



The CAPM is based on the notion that intelligent, risk-averse shareholders will seek to diversify their risks, and

as a consequence, the only risk that will be rewarded with a risk premium will be systematic risk. As can be

seen from equation, the risk premium associated with a particular asset is assumed to equal β i (rm – rf), where

β i is the systematic risk or no diversifiable risk of the asset the term rm – rf is known as the market risk

premium.(Alan C, Shapiro, 2003)

There are two types of risk, systematic and unsystematic. Risk rises from uncertainties which are attached with

single securities would be diversifiable if holding large number of securities. This type of risk can be totally

eliminate thorough diversification its known as unsystematic risk. Some examples of unsystematic risk, Govt.

increase custom duty on relevant materials, Workers strikes, New Competitor enter in the market.

Another type of risk is systematic risk or market risk. This type of risk cannot be diversified which are inherent

risk with the market. Some examples of systematic risks are Change of Interest Rate & Corporate Tax, Inflation.

Total Risk can be divided into two parts

Total Risk= Systematic Risk + Unsystematic Risk

Total Portfolio

Risk Unsystematic risk (Unique risk)

Systematic risk (Market risk)

Security No of Security

Source: http://optionalpha.com/how-to-correctly-use-beta-when-building-and-managing-your-portfolio-10482.html


http://optionalpha.com/how-to-correctly-use-beta-when-building-and-managing-your-portfolio-10482.html


Limitation of CAPM

In the CAPM the profit required by security is linked systematic risk not with the total risk. If we satisfied some

of the assumption of this model based on systematic risk, then the overall total risk is more important, in this

instant some limitation of this model should be considered.

This model assumes that all asset which is sold it’s based on its current prices and there is not selling and legal

cost attach with it. But In a real world you can’t ignore insolvency cost. Additionally, insolvency cost its attach

with the overall risk of a company rather than systematic risk.

The other assumption is that the investment market is efficient and reliable. If it’s not the investor would not

able to remove risk from their portfolio

The model also state that portfolio of investment are well diversified so there will be no such concerned about

unsystematic risk only need to be worried with systematic risk. However this is not true shareholder should

worried about whether its unsystematic risk even though if he diversified its and pursue for the total return

attach with total risk.

Another impractical assumptions, in real world it’s hard to find a risk free security (gilts). Gilts it’s in the form

of bond issued by government as a risk free & unlikely government will avoid paying but cause of inflation

there is a doubt in real rate of return.

Beta it’s a measure of future risk associate with investment, Beta itself doesn’t stay same and it’s difficult to

estimate future return as shareholders don’t have future data to calculate beta.



International CAPM

It can be used to calculate a cost of equity and incorporate risk. The CAPM is based on a comparison of the

systematic risk of individual investment with the risk of all shares in the market.

Howerver only the difference where a company operates:

Internationally

In integerated markets

So the international CAPM equation will be

ri = rf + β w (rm – rf )

Where, ri = equilibrium expected return for asset i

rf = rate of return on a risk – free asset, usually measured as the yield on a

U.S government Treasury bill or Treasury bond

rm = expected return on the market portfolio consisting of all risky asset

β w = is the beta factor of the whole world portfolio.

Limitations of the ICAPM

The Validity of International capital asset asset price model is on the assumption that international market is

integrated and all investors are world investors but in a real world it’s not the case. Countries and foreign

market are not fully integrated and there is a cost attach when investing internationally such as broker

commissions that’s why domestic investor prefer to do domestic investment. Furthermore, domestic investor

can’t get the access of information easily than foreign investors.

Cost of capital estimations in developing markets are way too low which is problematic valuation or

capital budgeting.

Local Investors of domestic market view exchange rate risk from the perspective of their domestic

currency.



Broker commissions Taxes, transactions costs, communication cost and capital barriers make it difficult

or unattractive for foreign investors to have the world market portfolio

In Real world not all markets are integrated and that’s why its problematic for developing markets

Evaluation Of Foreign Bond

Investment in foreign bonds is US dollars 1.5 million (15% x 40% x $25 billion)

Comparison between investments in Euro denominated bonds and US bonds:

Euro bonds:

Current spot rate is $1.4

Converted to Euro bonds = 1.5/1.4 = 1.07 billion

Interest rate 4.5% = 1.07 x 4.5% = gain on investmens

Add to original investment of 1.07 = 1.12 bn euros

Forward rate = $1.5

Convert to USD = 1.5 x 1.12 = USD 1.68

Net gains = 1.68 – 1.5 =0.18 bn USD

US bond

1.5 x 2.9% = gain on investment

Add to original investment of 1.5 bn =1.54

Net gains = 1.54 – 1.5 = .04 USD

Euro Bond

It’s a bond sold outside the authority of the country where the bond currency is dominated. In last few years

many strong markets has constructed which offer the large companies to borrow whether long term or short

term but the markets is not under national regulations. Euro bond are long term bond issued by international

financial institute or companies and available to sold in other countries at the same time. It’s normally repaid

between 5 to 15 years & the key amount of capital would be expected10 million or more.



It is similar to the public debt which is sold in domestic market contain floating and fix rate. But euro bond

markets are free from regulation and its running by the association of international bond dealers. Euro bond

market normally well known and have perfect rating. In 1980 the amount rose in euro bond it’s very less as

compare to Eurocurrency market but it’s still increasing dramatically and now its exceed the euro currency

market.

As above calculation show that we should invest in euro bond market because it will give you the gain of 0.18

billion as compare to US bond. In US bond the gain 0.04 billion. However some are the factors which need to

be assess while investing in euro bond, cause of the Europe crises and also has some political risk. This can be

eliminate by diversification.



Conclusion

It is very essential to understand that having an international portfolio includes currency risk. The investigation

carried out that there will be possible of currency risk cause of fluctuating currency values & it may reduce or

improve the return. It is debatable issue that investing internationally is problematic and not real for most

investors since U.S based companies rely mainly on single fund or international fund index.

Furthermore, market indicates it may not be simply investible assets due to high costs and market obstacles.

However, recent introduction of some new products such as exchange traded funds have made international

investing easer & reliable. This products portfolio is designed to allow internationally comparable standard

performances and can be simply traded on organized exchanges. Thus if foreign market continue to perform

well as compare to domestic market along with a better economic position & available access for investor, it is

likely that foreign market portfolio would be continue to good to U.S based investor in future.



Referencing And Bibliography

Shapiro, A.C (2009) Multinational Financial Management, Jhon Wiley & Sons, 9th Edition. ISBN

BPP, (2012) Advanced Financial Management, Bpp learning Media

Kaplan, (2010) Advanced Financial Management, Kaplan Publishing Uk

Ross, S. A.: The Arbitrage Theory of Capital Asset Pricing. In: Journal of Economic Theory, vol. 13, 1976, 341–360

Solink B, (1999) international investment, Addison Wesley, 4th edition

Eiteman, Stonehill & lessard, (2006) Multinational Business Finance, Addison Wesley, 9th edition



PART B

Swap Interest Rate

It’s an agreement between two parties to exchange their debt obligation for a definite maturity on an agreed

notional cost. Notional principal refers amount to against which the interest is considered. Normally maturities

length minimum is less than 1 year and maximum is more than 15 year. But mostly transections fall between

two years to ten years. There are basically two types of swap, coupon swap and basis swap.

In a coupon swap, one party would pay a fix rate to specific Treasury bond which is agreed at the time of trade.

And other party pay variable rate (floating rate) which is resets timely during the life of the agreed deal against

selected index. And if you see basis swap, where two parties exchange their floating interest obligation based on

difference of currency rate. By this mechanism interest rate swap convert into debt issues, assets or any flow of

cash from currency to currency. The most important rate which used in swap is London Interbank Offered Rate

(LIBOR). It’s the average interest rate which is offered by some selected group of Multinational Banks based in

London (particular by the British bankers Association) for U.S dollar deposits and used as a base index for

setting rate for many variable rate financial instruments particularly in euro bond & currency market.

Some of the reasons where variable for fixed interest rate swap is more appropriate for companies like ABC,

because specifically interest rate risk is reduce which is helpful for the both companies and the other main cause

it’s that there is no such premium payment while using swap however if you see other techniques of hedging

where payment of premium arise & it would be also helpful for company cash flow. The other main important

factors of using this technique it’s very flexible in nature in terms of contract as compare to contract with a

bank.



1st quarter £2,000,000 x (0.065-0.06) x 90/360 = £2,500

2nd quarter £2,000,000 x (0.064-0.06) x 90/360 = £2,000

3rd quarter £2,000,000 x (0.068-0.06) x 90/360 = £4,000

4th quarter £2,000,000 x (0.07-0.06) x 90/360 = £5,000

Other Alternative techniques of hedging

Forward Rate Agreement FRAs

It’s a contract on interest rate relating to a loan or deposit. When borrowing under the forward rate agreement

the firm would borrow the obligatory sum of amount on the settled date and so the contract at the market

interest rate on the same date. Individually the firm will buy a similar forward rate agreement from a market

creator or bank and will receive compensation if the rate is rise. While in the case of depositing the firm will

deposit the money on the settled date and so the contract at the market interest rate on the same day. Separately

firm will sell a similar forward rate interest to a bank & receive a compensation if the rate fall respectively.

Option on FRAs

Interest rate guaranty in an option on FRA like all option, secure the company from opposing movements and

also allow it get the advantage of positive movements. When borrowing money firm would buy a FRAs so a

call option used over FRAs. Similarly put option used over FRA when covering deposit. IRG are more

expensive than the FRAS cause its flexibility to get the advantage of favorable movement.

Interest Rate Futures (IRFs)

There are two type of interest rate futures: short term interest rate futures (STIRs) And Bond futures.

Short term Interest rate futures (STIRs) these are the forward exchange contract based on a estimated deposit of

a principal amount started on the final settlement date of contract.



Bond futures are standard notional government bond. If final settled date reach and seller or buyer doesn’t close

his position before then the contract settled by physical delivery

Swaption

A swaption is an option allowing its holder the right but no responsibility to enter basic swap. Swaptions are

mix derivative product which incorporate the benefits swap and options at some future date on term agreed

today and on the top premium is payable.

Sovereign Bond

Bonds allotted by a local government in foreign money, in order to funding the issuing country's growth.

Sovereign debt is usually a risky deal when its related to emerging country & a safer investment when it comes

from a developed country. The stability of government of issuing a bond is an important factor to consider,

when considering the risk of investing in sovereign debt, and sovereign credit ratings such as Standard and

poor’s (S&P) would help investors assess this risk.

It’s had stormy time world over since last three years of financial markets whether in US or Non Us countries.

And thought to be one of the biggest economic disasters period. The economy of world is still revolving under

the consequence of debt crisis. Stocks markets used to be considered as one of the main signs of the health of

any economy market condition, have considerably coped to recover the losses worldwide still the situation is

uncertain. Every time we hear a bad news of falling country target to credit crisis. The overall situation is far

away from stability. All the financial institutions and governments are taking suitable steps to resolve the

condition but more needs to be done. The global collapse affected by all the major economics of the world has

to do with sovereign debt crisis. It’s an essential part of any economy by its nature. However too much debt is

always been a problem. It’s doesn’t really matter who takes the debt, whether any individuals, companies or

governments, but too much would cause of disaster. The situations turn into more worst when the debtor itself

had fails to discover a central bank to buying its debt. Both Financial debt and public debt is vital for different

development and growing plans. The borrowed capital is preferred to use for public or social welfare schemes

or to use in government infrastructural projects. However if the debt is owed in a different currency that is other

than the debtor’s currency, the sovereign debt crisis can emerge.



Standard & Poor (S&P) which is a very reputed credit rating agency, explains sovereign debt crisis as a impact

of debt defaulting. The default can arise cause of particular reasons like non payments of interest or principal

amount missed on bank loan or notes on bills etc. Handling sovereign debt crisis become a massive task for any



government or financial institute. 1980s of Debt crisis still stored in memories of people how they had faced

debt disaster. If you see International debt crisis in late 90s it’s become a chain one by one of economic disaster

like South Asian Countries Indonesia, Thailand, South Korea, Malaysia, Philippines etc.

In some of the cases changing in the business environment can affect the credit risk of issuers and securities

which lead to effect on credit rating. For example, new technology in the market, or new competition which is

the factors to be considered by credit agency and while if a company factored into the ratings, may upset a

company’s estimated earnings performance, which would result to one or more rating downgrades over time.

Rising or decrease debt burdens, heavy capital expenditure requirements, and changes in regulatory may also

trigger ratings affect. When you see the case of corporate issuers adopted a highly aggressive business model,

which result in growth through large acquisitions or mergers in unverified markets, the risks attached with their

ability to perform this strategy are most important factors in assessing their creditworthiness.

Factors to be considered

Standard & Poor's assessment of each sovereign's creditworthiness mainly focuses on political and economic

risks in the market both quantitative and qualitative. The measurable features of the analysis integrate a number

of measures of economic performance, although judging the reliability of the data is a more qualitative matter.

The analysis is also qualitative due to the importance of political and policy changes and because Standard &

Poor's ratings indicate future debt-service capacity. Mostly study emphases on the appropriateness of the policy

mix, because variations of the exchange rate tend to leave a country exposed to shocks. A Government that is

unwilling to repay debt is usually pursuing economic policies that weaken its ability to do so. In practice, of

course, political and economic risks are related. Willingness to pay, therefore, encompasses the range of

economic and political factors In addition, agency like Standard & Poor’s may have to adjust its ratings

accordingly in response to mergers & acquisitions, or an increase or decrease in expected revenues.

Standard & Poor's local is a local credit agency precisely analysis is on a government's economic strategy such

as fiscal and monetary policies, govt plans for privatization or nationalization and other reforms of domestic

microeconomic. When measuring the risk associate on foreign currency debt, Standard & Poor's places more

focus on the impact of these factors like external liquidity, balance of payments and characteristics of the

external debt burden.



Some major key economic and political risks are need to be consider by that Standard & Poor's when rating

sovereign debt are as follows.

• Impact of Political organizations and movements in the country on the effectiveness and transparency in the

economic policy decisions, as well as public security and geopolitical risk

• Economic structure of the country and pattern of growth and prosperity.

• Government deficits/ surplus, government revenue inflow & expenditure pressures, debt crises, and contingent

liabilities and public-sector enterprises efficiency

• Monetary policy

• External liquidity and non-resident deposit

These factors above which are directly related on attitude of government to measure right local currency debt

service. Because both fiscal and monetary policies have a major influence on a country balance sheet, also

effect on service foreign currency debt.

Political risk

The stability of government and political institutions are important consideration in examining.

Standard & poor analyze the changing in government condition, political shocks and security concerns for

public. How the country have relations with the neighbor’s country, internal & external security risk. National

security concern how the military effect on national fiscal policy. Political and external shocks are easily effect

on economic policy than at higher.

Political aspects of any country are at the main of sovereign risk analysis, such as seen in Russia has a major

improvement in fiscal & monetary policy which lead to higher sovereign ratings than political factors suggest.

Economic structure and prospects

Market economies of Central and Eastern Europe has carried the economic-structure scores of Slovenia and

Czech Republic near to those of Western European sovereigns with market economies. Rankings with lower

scores assigned to sovereigns which have relatively narrow economies, inflation, foreign debt, bad government



policies, weak developed financial systems, and wide income discrepancies. Lower rankings may also

privatization of companies or poor performance of private sectors, decline in economic growth.

Fiscal flexibility

It’s the function not only deal with the surpluses and deficits, but also of revenue and expenditure, effectiveness

of expenditure and pressure, and the suitability of the policy mix. Surplus or a low deficit ordinarily not provide

much fiscal flexibility if the tax base is narrow, infrastructure needs are critical, the burden of debt is high,

difficulties in the financial sector or monetary policy is excessively. High deficit would be suitable when

cyclical measurers Successful fiscal policies help to build an atmosphere favorable to maintainable economic

growth. Sovereigns with heavily managed exchange rate or large external differences usually have to depend on

fiscal measures in manipulating local demand. The analysis depends as much on the suitability of the mix

economic policy on deficit/surplus performance.



Referencing And Bibliography

Shapiro, A.C (2009) Multinational Financial Management, Jhon Wiley & Sons, 9th Edition. ISBN

BPP, (2012) Advanced Financial Management, Bpp learning Media

Kaplan, (2010) Advanced Financial Management, Kaplan Publishing Uk


Documents

International Portfolio Diversification and Asset pricing Model