Homework answers / question archive / PART 1 (Minimum 300 words) What are political risks? What are some political risks a company may face when investing internationally, research a recent example of political risk that a domestic company was exposed to

PART 1 (Minimum 300 words) What are political risks? What are some political risks a company may face when investing internationally, research a recent example of political risk that a domestic company was exposed to

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PART 1 (Minimum 300 words) What are political risks? What are some political risks a company may face when investing internationally, research a recent example of political risk that a domestic company was exposed to. Identify the events leading up to the political risk you researched and describe the end result. Explain how this kind of risk would affect potential international operations, and develop a plan for how you would mitigate the risk associated with a similar situation. PART 2 (Minimum 300 words) Discuss various restrictions on equity ownership by foreigners. Review the Investing Across Borders 2010 (Links to an external site.) document, and conduct some independent research on restrictions on foreign equity ownership for the country that you will recommend for ACME. Report your findings and examine how the restrictions might hinder international operations. Devise a strategy for how you might restructure your acquisition target to meet all ownership restrictions. PART 3 Use the stock market index for your Taiwan for the ACME acquisition to solve for the optimal international portfolio using the formula below. Assess the potential gains from holding an optimal international portfolio, citing the information from the portfolio and the Sharpe ratio to justify your recommendation to ACME. Illustrate how the portfolio could provide ACME the maximum return based on the amount of risk they are willing to incur. Here we explain how to solve for the optimal portfolio of risky securities when there exists a risk-free asset paying a certain risk-free interest rate, Rf. Once we assume that investors prefer more wealth to less and are averse to risk, we can solve for the “optimal” portfolio by maximizing the Sharpe ratio (SHPp) of the excess portfolio return to the standard deviation risk. In other words, where Images is the expected rate of return on the portfolio and σp is the standard deviation of the portfolio returns. The expected portfolio return, Images is just the weighted average of the expected returns to individual assets, Images included in the portfolio, that is, where xi denotes a fraction of wealth invested in the ith individual asset; the sum of fractions should add up to 1, that is, Σi xi = 1. The portfolio risk, σp, on the other hand, is related to the variances and covariances of individual asset returns as follows: where σij denotes the covariance of returns to the ith and jth assets. What’s inside the bracket is the variance of portfolio return. Now let us consider a simple case where the portfolio includes only two risky assets, A and B. In this case, the risk and return of the portfolio will be determined as follows: Suppose we now want to solve for the optimal portfolio using the two assets. We then first substitute Equations 15B.4 and 15B.5 in Equation 15B.1 and maximize SHPp with respect to the portfolio weights x’s to obtain the following solution: