The Return and Variance of Return to a U

question 6

Multiple Choice

The return and variance of return to a U.S. dollar investor from investing in individual foreign security i are given by:

• A)R_i$ = (1 + R_i)(1 + e_i) - 1 and Var(R_i$) = Var(R_i)
• B)R_i$ = R_i + e_i and Var(R_i$) = Var(R_i) + Var(e_i)
• C)R_i$ = (1 + R_i)(1 + e_i) - 1 and Var(R_i$) = Var(R_i) + Var(e_i) + 2Cov(R_i,e_i)
• D)None of the above

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Definitions:

Positive Relationship

A situation where two variables move in the same direction, meaning as one variable increases, the other variable also increases.

Inverse Relationship

A term used to describe a situation where the increase in one variable leads to the decrease in another, and vice versa.

Positive Slope

A line or curve on a graph that inclines upwards, indicating a direct relationship between two variables, such as price and quantity supplied.

Negative Slope

Describes a line or curve on a graph that decreases in value as it moves from left to right.