Question 1

The performance of an internationally-diversified portfolio may be affected by

Accepted Answer

A)  country selection. 
B)  currency selection. 
C)  stock selection. 
D)  All of the options are correct. 
E)  None of the options are correct. 
A)  country selection. 
B)  currency selection. 
C)  stock selection. 
D)  All of the options are correct. 
E)  None of the options are correct.

Question 2

An investor invests in a Japanese bond at 6% for one year. The equivalent USA investment yields 7%. If the spot exchange rate is 104.00 yen per USD, what is the expected forward exchange rate in yen per USD?

Accepted Answer

A)  103.61 
B)  103.49 
C)  103.03 
D)  102.31 
A)  103.61 
B)  103.49 
C)  103.03 
D)  102.31

Question 3

The interest rate on a 1-year Canadian security is 7.8%. The current exchange rate is C$ = US $0.79. The 1-year forward rate is C$ = US $0.77. The return (denominated in U.S. $) that a U.S. investor can earn by investing in the Canadian security is

Accepted Answer

A)  3.59%. 
B)  4.00%. 
C)  5.07%. 
D)  8.46%. 
E)  None of the options 
A)  3.59%. 
B)  4.00%. 
C)  5.07%. 
D)  8.46%. 
E)  None of the options

Question 4

An investor invests in a Japanese bond at 5.5% for one year. The equivalent USA investment yields 3.8%. If the spot exchange rate is 110.00 yen per USD, what is the expected forward exchange rate in yen per USD?

Accepted Answer

A)  111.80 
B)  111.49 
C)  111.03 
D)  110.91 
A)  111.80 
B)  111.49 
C)  111.03 
D)  110.91

Question 5

__________ are mutual funds that invest in one country only.

Accepted Answer

A)  ADRs 
B)  ECUs 
C)  Single-country funds 
D)  All of the options are correct. 
E)  None of the options are correct. 
A)  ADRs 
B)  ECUs 
C)  Single-country funds 
D)  All of the options are correct. 
E)  None of the options are correct.

Question 6

An investor invests in a Mexican treasury at 9% for one year. The equivalent USA investment yields 5%. If the spot exchange rate is 13.000 pesos per USD, what is the expected forward exchange rate in pesos per USD?

Accepted Answer

A)  13.691 
B)  13.495 
C)  13.150 
D)  13.000 
A)  13.691 
B)  13.495 
C)  13.150 
D)  13.000

Question 7

An investor invests in a Japanese bond at 6.5% for one year. If the spot exchange rate is 110.00 yen per USD and the one year forward exchange rate is 112, what return should the investor expect on an equivalent USD investment?

Accepted Answer

A)  4.60% 
B)  5.20% 
C)  5.92% 
D)  6.50% 
A)  4.60% 
B)  5.20% 
C)  5.92% 
D)  6.50%

Question 8

The interplay between interest rate differentials and exchange rates, such that each adjusts until the foreign exchange market and the money market reach equilibrium, is called the

Accepted Answer

A)  Purchasing Power Parity Theory. 
B)  Balance of Payments. 
C)  Interest Rate Parity Theory. 
D)  None of the options are correct. 
A)  Purchasing Power Parity Theory. 
B)  Balance of Payments. 
C)  Interest Rate Parity Theory. 
D)  None of the options are correct.

Question 9

__________ refers to the possibility of expropriation of assets, changes in tax policy, and the possibility of restrictions on foreign exchange transactions.

Accepted Answer

A)  Default risk 
B)  Foreign exchange risk 
C)  Market risk 
D)  Political risk 
E)  None of the options are correct. 
A)  Default risk 
B)  Foreign exchange risk 
C)  Market risk 
D)  Political risk 
E)  None of the options are correct.

Question 10

The interest rate on a 1-year Canadian security is 8%. The current exchange rate is C$ = US $0.78. The 1-year forward rate is C$ = US $0.76. The return (denominated in U.S. $) that a U.S. investor can earn by investing in the Canadian security is

Accepted Answer

A)  3.59%. 
B)  4.00%. 
C)  5.23%. 
D)  8.46%. 
E)  None of the options are correct. 
A)  3.59%. 
B)  4.00%. 
C)  5.23%. 
D)  8.46%. 
E)  None of the options are correct.

Question 11

Home bias refers to

Accepted Answer

A)  the tendency to vacation in your home country instead of traveling abroad. 
B)  the tendency to believe that your home country is better than other countries. 
C)  the tendency to give preferential treatment to people from your home country. 
D)  the tendency to overweight investments in your home country. 
E)  None of the options are correct. 
A)  the tendency to vacation in your home country instead of traveling abroad. 
B)  the tendency to believe that your home country is better than other countries. 
C)  the tendency to give preferential treatment to people from your home country. 
D)  the tendency to overweight investments in your home country. 
E)  None of the options are correct.

Question 12

The __________ index is a widely used index of non-U.S. stocks.

Accepted Answer

A)  CBOE 
B)  Dow Jones 
C)  EAFE 
D)  All of the options are correct. 
E)  None of the options are correct. 
A)  CBOE 
B)  Dow Jones 
C)  EAFE 
D)  All of the options are correct. 
E)  None of the options are correct.

Question 13

The straightforward generalization of the simple CAPM to international stocks is problematic because

Accepted Answer

A)  inflation-risk perceptions by different investors in different countries will differ as consumption baskets differ. 
B)  investors in different countries view exchange-rate risk from the perspective of different domestic currencies. 
C)  taxes, transaction costs, and capital barriers across countries make it difficult for investors to hold a world-index portfolio. 
D)  All of the options are correct. 
E)  None of the options are correct. 
A)  inflation-risk perceptions by different investors in different countries will differ as consumption baskets differ. 
B)  investors in different countries view exchange-rate risk from the perspective of different domestic currencies. 
C)  taxes, transaction costs, and capital barriers across countries make it difficult for investors to hold a world-index portfolio. 
D)  All of the options are correct. 
E)  None of the options are correct.

Question 14

The yield on a 1-year bill in the U.K. is 8%, and the present exchange rate is 1 pound = U.S. $1.60. If you expect the exchange rate to be 1 pound = U.S. $1.50 a year from now, the return a U.S. investor can expect to earn by investing in U.K. bills is

Accepted Answer

A)  −6.7%. 
B)  0%. 
C)  8%. 
D)  1.25%. 
E)  None of the options are correct. 
A)  −6.7%. 
B)  0%. 
C)  8%. 
D)  1.25%. 
E)  None of the options are correct.

Question 15

Exchange-rate risk

Accepted Answer

A)  results from changes in the exchange rates between the currency of the investor and the country in which the investment is made. 
B)  can be hedged by using a forward or futures contract in foreign exchange. 
C)  cannot be eliminated. 
D)  results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and cannot be eliminated. 
E)  results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and can be hedged by using a forward or futures contract in foreign exchange. 
A)  results from changes in the exchange rates between the currency of the investor and the country in which the investment is made. 
B)  can be hedged by using a forward or futures contract in foreign exchange. 
C)  cannot be eliminated. 
D)  results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and cannot be eliminated. 
E)  results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and can be hedged by using a forward or futures contract in foreign exchange.

Question 16

According to PRS, in 2016, which country had the highest composite risk rating on a scale of 0 (most risky) to 100 (least risky)?

Accepted Answer

A)  Switzerland 
B)  Canada 
C)  Germany 
D)  U.S. 
A)  Switzerland 
B)  Canada 
C)  Germany 
D)  U.S.

Question 17

Which equity index had the lowest volatility in terms of U.S. dollar-denominated returns for the period of five years ending in 2018?

Accepted Answer

A)  Korea 
B)  Swiss 
C)  Toronto 
D)  Nikkei 
A)  Korea 
B)  Swiss 
C)  Toronto 
D)  Nikkei

Question 18

International investing

Accepted Answer

A)  cannot be measured against a passive benchmark, such as the S&P 500. 
B)  can be measured against a widely-used index of non-U.S. stocks, the EAFE Index (Europe, Australia, Far East). 
C)  can be measured against international indexes. 
D)  can be measured against a widely-used index of non-U.S. stocks, the EAFE Index (Europe, Australia, Far East), and against international indexes. 
E)  None of the options are correct. 
A)  cannot be measured against a passive benchmark, such as the S&P 500. 
B)  can be measured against a widely-used index of non-U.S. stocks, the EAFE Index (Europe, Australia, Far East). 
C)  can be measured against international indexes. 
D)  can be measured against a widely-used index of non-U.S. stocks, the EAFE Index (Europe, Australia, Far East), and against international indexes. 
E)  None of the options are correct.

Question 19

The manager of Cross Border Fund uses EAFE as a benchmark. Last year's performance for the fund and the benchmark were as follows: $\begin{array}{ccccc}
&\text { EAFE } & \text { Return on } & \text { Currency } & \text { Cross } & \text { Manager's } \
&\text { Weight } & \text { Equity } & \text { Aplication } & \text { Border's } & \text { Return } \
&& \text { Index } & E_{1} / E_{0-1} & \text { Weight } &\
  \text { Eur } &0.30&10\%&10\%&0.25&9\%\
 \text { Aus } &0.10&5\%&-10\%&0.25&8\%\
 \text { FE } &0.60&15\%&30\%&0.50&16\%\
\end{array}$
 Calculate Cross Border's stock selection return contribution.

Accepted Answer

A)  1.0% 
B)  ?1.0% 
C)  3.0% 
D)  0.25% 
A)  1.0% 
B)  ?1.0% 
C)  3.0% 
D)  0.25%

Question 20

Assume there is a fixed exchange rate between the Canadian and U.S. dollar. The expected return and standard deviation of return on the U.S. stock market are 18% and 15%, respectively. The expected return and standard deviation on the Canadian stock market are 13% and 20%, respectively. The covariance of returns between the U.S. and Canadian stock markets is 150. If you invested 50% of your money in the Canadian stock market and 50% in the U.S. stock market, the standard deviation of return of your portfolio would be

Accepted Answer

A)  12.53%. 
B)  15.21%. 
C)  17.50%. 
D)  18.75%. 
A)  12.53%. 
B)  15.21%. 
C)  17.50%. 
D)  18.75%.

Exam 25: International Diversification

The performance of an internationally-diversified portfolio may be affected by

An investor invests in a Japanese bond at 6% for one year. The equivalent USA investment yields 7%. If the spot exchange rate is 104.00 yen per USD, what is the expected forward exchange rate in yen per USD?

The interest rate on a 1-year Canadian security is 7.8%. The current exchange rate is C$ = US $0.79. The 1-year forward rate is C$ = US $0.77. The return (denominated in U.S. $) that a U.S. investor can earn by investing in the Canadian security is

An investor invests in a Japanese bond at 5.5% for one year. The equivalent USA investment yields 3.8%. If the spot exchange rate is 110.00 yen per USD, what is the expected forward exchange rate in yen per USD?

__________ are mutual funds that invest in one country only.

An investor invests in a Mexican treasury at 9% for one year. The equivalent USA investment yields 5%. If the spot exchange rate is 13.000 pesos per USD, what is the expected forward exchange rate in pesos per USD?

An investor invests in a Japanese bond at 6.5% for one year. If the spot exchange rate is 110.00 yen per USD and the one year forward exchange rate is 112, what return should the investor expect on an equivalent USD investment?

The interplay between interest rate differentials and exchange rates, such that each adjusts until the foreign exchange market and the money market reach equilibrium, is called the

__________ refers to the possibility of expropriation of assets, changes in tax policy, and the possibility of restrictions on foreign exchange transactions.

The interest rate on a 1-year Canadian security is 8%. The current exchange rate is C$ = US $0.78. The 1-year forward rate is C$ = US $0.76. The return (denominated in U.S. $) that a U.S. investor can earn by investing in the Canadian security is

Home bias refers to

The __________ index is a widely used index of non-U.S. stocks.

The straightforward generalization of the simple CAPM to international stocks is problematic because

The yield on a 1-year bill in the U.K. is 8%, and the present exchange rate is 1 pound = U.S. $1.60. If you expect the exchange rate to be 1 pound = U.S. $1.50 a year from now, the return a U.S. investor can expect to earn by investing in U.K. bills is

Exchange-rate risk

According to PRS, in 2016, which country had the highest composite risk rating on a scale of 0 (most risky) to 100 (least risky)?

Which equity index had the lowest volatility in terms of U.S. dollar-denominated returns for the period of five years ending in 2018?

International investing

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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