GS hard technical question
Got asked this in a first round interview.
- Company X makes cash flow in rubles.
- Company X’s only peers are in the US.
How do you calculate Company X’s beta?
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Beta has nothing to do with cash flow, but with historical returns / volatility of that security. Regress the returns of the comp set, but assume an FX rate conversion for those returns to rubles if you want to get fancy. Or, if you are being asked to calculate beta in USD, just convert the returns of ur target company into USD assuming an FX conversion rate (maybe sensitize FX rates if you’re a hardo), and then do it the same way as you would otherwise
Maybe use a different market index like MSCI World Index
You have to use the plug-play method. Doesn't matter if the Cash flow is in ruble, you would have to use the avg of the peers unlevered beta, US tax rate and the present company's D/E ratio to come up with your beta. So that would give you the unlevered beta, which you can now convert to equity beta
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