Considering the CAPM in an international context leads to further complications on top of those associated with the local CAPM.These include:

A) foreign exchange rates
B) finding an appropriate market portfolio
C) finding a uniform risk-free rate
D) all of the above

Question

Considering the CAPM in an international context leads to further complications on top of those associated with the local CAPM.These include:

A) foreign exchange rates
B) finding an appropriate market portfolio
C) finding a uniform risk-free rate
D) all of the above

Quizplus · Accepted Answer

A number of complications arise when attempting to model in an international context.First,no uniform risk-free rate exists for all markets.Second,the existence of exchange rates results in an additional risk for investors,the effect of which needs to be included in the model.Exchange rate risk means that investors in different countries will perceive the risk and return characteristics of foreign investments differently.

Considering the CAPM in an International Context Leads to Further