1. U.S. market portfolio:
Variance: 0.06
Foreign asset:
Variance estimated based on dollar rate of return: 0.10
Correlation Coefficient (estimated based on dollar rate of return) between the U.S. market portfolio and the foreign asset: .30
What is the firm-specific risk component for the foreign asset?
a. .190
b. .155
c. .091
d. .011
e. .022
2. "If an investor can obtain less of a foreign currency for a dollar in the forward market than in the spot market, then the foreign currency is said to be selling at a forward premium." True or false?