Emg Market Equities Question

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Dwight

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Agree or disagree with the following statement and why?
“For an investor holding only developed market equities, the existence of stable emerging market currencies is one of several pre-conditions necessary for that investor to realize strong emerging market performance.”
 
Agree. Emerging market securities provide diversification (low correlation) to a “developed market equities ” portfolio. Emerging markets also provide higher returns but at higher risks. Existence of stable currencies for emerging markets reduce currency risk while providing for diversification benefits to the entire portfolio.
Hope ….i am some where in the ball park …:)
 
That was basically the same thing I said, except I didn’t include that bit about currency risk.
This is a question from the ‘03 exam. Their answer is that the statement is INCORRECT for the following reason:
“There have been periods of strong performance despite weak currencies. It is also possible that an appreciating currency could enhance performance.”
I wish they had a little more thorough explanation. I don’t recall reading anything about this but maybe they have taken it out of the curriculum too…
 
Agree.
Addition of emerging market securities help reduce overall portfolio risk and increase portfolio return. These benefits derived from an emerging market investment can be negatively affected by increasing volatility in the foreigh currency or more specifically considerable decline in the foreign currency. Hence an investor must consider the stability of the emerging market currency before investing into emerging market securities as part of his/her analysis.
Arghh it is difficult to write answers. In fact i kept using back space for the above….are we supposed to use a pencil or pen to write the AM essays??
 
[email protected] Wrote:
——————————————————-
> Arghh it is difficult to write answers. In fact i
> kept using back space for the above….are we
> supposed to use a pencil or pen to write the AM
> essays??
Have to use a pen. I think one rationale is that so candidates will cross out mistakes instead of trying to erase them (whihc wastes time and makes it more difficult to grade).
From the CFA website:
Constructed-response essay answers for Level III (AM session)
Use blue or black ink on the designated pages.
Writing Instruments:
Level III candidates must bring number two, or HB, pencils and pens (with blue or black ink) for the essay portion of the examination.
 
This is good info too:
The following are common reasons that graders give for poor candidate performance on the essay portion of the Level III:
Not responsive to command word list (list, define, etc.)
Answered a question they wish they had been asked instead of the question that was asked.
No work shown on a calculation question and the answer is incorrect.
Hedged on questions that asked for a recommendation and justification (recommended A, but justified B).
Neglected to answer part of the question (especially if a several part question). Note that you can still answer part E, even if you do not know the answer to part D.
Content area experts spent too much time on their area of expertise, leaving too little time for weak areas.
 
They will accept pencil, but I won’t push it…..even though I hate writing with a pen.
 
Dwight Wrote:
——————————————————-
> This is good info too:
>
> The following are common reasons that graders give
> for poor candidate performance on the essay
> portion of the Level III:
>
> Not responsive to command word list (list, define,
> etc.)
> Answered a question they wish they had been asked
> instead of the question that was asked.
> No work shown on a calculation question and the
> answer is incorrect.
> Hedged on questions that asked for a
> recommendation and justification (recommended A,
> but justified B).
> Neglected to answer part of the question
> (especially if a several part question). Note that
> you can still answer part E, even if you do not
> know the answer to part D.
> Content area experts spent too much time on their
> area of expertise, leaving too little time for
> weak areas.
Gotta link to this dwight? I am too lazy to look for it…..
 
Thanks mwvt9 and Dwight …. i didn’t know these details. That is very helpful.
 
Dwight Wrote:
——————————————————-
> Agree or disagree with the following statement and
> why?
>
> “For an investor holding only developed market
> equities, the existence of stable emerging market
> currencies is one of several pre-conditions
> necessary for that investor to realize strong
> emerging market performance.”
Currency instability is not an issue if you can hedge the risk with a currency derivative, so I suppose it’s not a necessary condition, provided there is a liquid market for hedging instruments.
That said, I also got this wrong at first glance. Good lesson, it’s easy to be led into the wrong answer if you don’t stop and think about the question carefully.
 
I hope they give enough space to write the answers ……..for a situation where you have to cancel out an entire calculation and re do it due to silly mistake (will hate it if I have to waste time like that)
 
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