Country Beta

CFA Level III
#1

Is country beta = Change in Domestic yield / Change in Foreign yield OR is country beta = Change in Foreign yield / Change in Domestic yield? For example: QUESTION: A UK fund manager invests in Germany. Duration of German bond is 6. Country beta is 0.5. What is the Duration to changes in British yields? ANSWER Is Duration to changes in British yields equal to 6*0.5=3 OR 6/0.5=12? Thanks!

#2

multiply the FC bond duration by the country beta = 6 * 0.5 = 3. So a 100bp change in DC rates generates 3% change in DC value of the FC bond. THen if the FC bond is say 10% of the DC investor’s portfolio, the impact of the FC bond duration on the DC investor’s portfolio = 3 * 0.1 = 0.3% both of these questions have come up numerous times in past papers cheers…

#3

So in otherwords, my FIRST FORMULA is correct right, i.e. this one below makes sense? country beta = Change in Domestic yield / Change in Foreign yield

#4

Can someone please advise if this formula is correct or not? country beta = Change in Domestic yield / Change in Foreign yield

#5

Duration * Country Beta * Interest Rate Movement = Change in bond price to Local PM

#6

Thanks Bankin’, but what about the example question? What formula would you apply to work out the answer? For example: QUESTION: A UK fund manager invests in Germany. Duration of German bond is 6. Country beta is 0.5. What is the Duration to changes in British yields? ANSWER WHAT FORMULA and what numbers?

#7

6 * 0.5 = 3