Emerging Market Question

CFA Level III
#1

Emerging markets are subject to periodic crisis. Most of the time, the crisis does not spread beyond the local region. True or False During the crisis, does that increase the correlation with developed markets - True/False

#2

Pure guesswork 1) True - based on contagion 2) False

#3

I hope I get this right True False

#4

True to both. The correlation is related to the volatility not the emerging market. There is a correlation between volatility between emerging and developed during times of crisis due to the volatility itself.

#5

false no

#6

true true

#7

false true

#8

How could the first one be true? It could spread to neighboring emerging market although it may not spread to developed countries.

#9

first one is false

#10

False ( see Asia currency crisis ----->russia crisis ------------>LTCM) True ( one of the criticism of emerging market investing)

#11

True to both. (Deriv - mark the word -“does not spread beyound local region”

#12

question from CFAI The first question asks “most of the time” so it is true

#13

im having a hard time believeing the 1st one to be true does anyone have a cfai reference…please provide

#14

yes A is true “International correlation tends to increase in periods of crises, and emerging markets are subject to periodic large crises. Patel and Sankar (1998) find that crises on emerging markets tend to be more prolonged than crises on developed markets, and tend to spread to all emerging markets in the region. It is often the case, however, that a crisis affecting one emerging country does not spread to other emerging countries, especially outside its region. This is the case when the crisis is caused primarily by domestic political problems; many examples can be found in the recent past. An emerging market boom or crisis does not necessar- ily spread to developed markets, explaining the rather low correlation between developed and emerging markets. Spread depends on whether the factors creat- ing the boom or crisis are primarily local or global.”

#15

I misinterpret the local region as single country , it is many countries in a region

#16

Thanks Goodman wow what can i say i guess A is true , emerging market crisis are not likely to spread beyond its region by the way where is this taken from exactly

#17

reading27

#18

I think it was int he mock too

#19

Just got type I error…didn’t read the full question(RTFQ)…read local region as local market. Thanks.

#20

Could you explain question two as to why it’s true? Thanks