The overall economic performance of developing countries is expected to outpace that of the United States over the coming years. A customer that wishes to profit from this should receive which recommendation and accompanying risk disclosures?

A.
The customer should be recommended a special situations fund, as long as the customer is willing to assume regulatory risk and market risk

B.
The customer should be recommended a specialty fund, as long as the customer is willing to assume credit risk and extension risk

C.
The customer should be recommended an emerging markets fund, as long as the customer is willing to assume political risk and exchange rate risk

D.
The customer should be recommended a sector fund, as long as the customer is willing to assume unsystematic risk and market risk

Question

04-07-2020
Business

contestada

The overall economic performance of developing countries is expected to outpace that of the United States over the coming years. A customer that wishes to profit from this should receive which recommendation and accompanying risk disclosures?

A.
The customer should be recommended a special situations fund, as long as the customer is willing to assume regulatory risk and market risk

B.
The customer should be recommended a specialty fund, as long as the customer is willing to assume credit risk and extension risk

C.
The customer should be recommended an emerging markets fund, as long as the customer is willing to assume political risk and exchange rate risk

D.
The customer should be recommended a sector fund, as long as the customer is willing to assume unsystematic risk and market risk

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Answer: C. The customer should be recommended an emerging markets fund, as long as the customer is willing to assume political risk and exchange rate risk

Explanation:

In order to take advantage of the opportunity that presents itself from developing countries outpacing that of the US in years to come, the customer should invest in an Emerging Markets fund. This fund invests in securities from the more rapidly developing countries like China and Brazil so the customer will be poised to take advantage of the opportunities offered by this.

However, they should be wary of Exchange rate risks as their currencies are not as strong as the US dollar and can be unstable.

They also need to worry about political instability as quite a lot of developing countries do not have strong democracies and Economic decisions are influenced by political decisions a bit too much.