Foreign Policy Rate (i*)

An investor based in Australia is considering purchasing corporate bonds issued by a company in the United Kingdom. To decide if this foreign investment is worthwhile, the investor needs a fundamental baseline for comparison. Which of the following represents the most appropriate benchmark for this Australian investor?

Global Investment Decision Benchmark

Rationale for the Home Currency Benchmark

A Canadian investor is evaluating an investment in a German technology startup. To determine the minimum acceptable return, the investor should use the interest rate on a German government bond as their primary benchmark.

An international investment firm employs analysts from various countries. For each analyst evaluating a potential foreign investment, match them with the most appropriate risk-free benchmark they should use for their comparison.

A French investor determines that a risk-free investment in their own country yields a 2% annual return. They are evaluating a foreign investment opportunity that, after adjusting for all relevant risks and currency fluctuations, is projected to yield 1.5%. The investor should reject this opportunity because its adjusted return is less than the return available from their __________.

An investor from South Korea is considering an investment in Brazilian government bonds. Arrange the following steps in the logical order they would follow to make a decision using their home currency's risk-free asset as a benchmark.

An investor based in Switzerland has historically found it profitable to invest in a portfolio of foreign corporate bonds, as their returns consistently exceeded the 1% yield on Swiss government bonds. Recently, the Swiss central bank increased its key interest rate, causing the yield on Swiss government bonds to rise to 4%. Assuming the expected returns and risks of the foreign bonds remain the same, what is the most likely consequence for the investor's strategy?

Evaluating an Investment Manager's Rationale