May I know why this is the case on page 6 of Chapter 10: 1. "The marketability of units in an open-ended fund is guaranteed by the managers." 2. "Gearing results in more volatile but higher expected returns to shareholders."
Hi Kimiko, This is talking around the idea that units can be created, or cancelled, depending on demand. Therefore the ability to buy and sell at a fair price will be guaranteed. A highly geared company is one that has a lot of debt. As a result, they would be more susceptible to economic downturns / shifts, such as high interest rates. As a result, there would be a higher expected return needed to allow for this additional risk. Hence a higher expected return to shareholders. I hope that helps. Thanks Aman ActEd Tutor
Thank you, Aman! May I also understand what this refers to on page 19 of Chapter 10, is it referring to earnings being in domestic currency? "such a company’s earnings will be diluted by domestic earnings"
Hi, This is saying that this type of investment will still have some domestic earnings, as well as international earnings, hence the word 'diluted'. We can think of it as an investor who only wants to invest overseas - by investing in a large multinational company based in the home market, the investor will still have to have some investment in the domestic country, by using this investment method. Thanks Aman ActEd Tutor
