Question Two Mariam Mansiru, a Ghanaian citizen, is considering making a Ȼ50,000 investments in the bonds...
Homework Answers
If the Naira declines in value after the investment is made, the investment will fall in value. This is because the returns obtained from the investment will now have a lower value than before.
Other risks apart from currency risk include counterparty risk or default risk which means that there is a risk of the other party not paying the sum required to be paid by them. Since it is a bond investment, there is also an interest rate risk because of which if the interest rate changes, the value of their investment can also change. Apart from that, legal and political risks are there because they are investing in a different country.
If Mariam's bank decides to buy the bonds, they can use futures or options to hedge their currency risk. To hedge the interest rate risk, they can use swaps. To take care of counterparty risk, they can do proper research of the counterparty before making the investment.
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Question Two
Mariam Mansiru, a Ghanaian citizen, is considering making a
Ȼ50,000 investments in the bonds...
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