Question 1

As exchange rates change, they

Accepted Answer

A)  change the relative purchasing power between countries. 
B)  can affect imports and exports between countries. 
C)  will affect the flow of funds between countries. 
D)  All of the options are true. 
A)  change the relative purchasing power between countries. 
B)  can affect imports and exports between countries. 
C)  will affect the flow of funds between countries. 
D)  All of the options are true.

Question 2

The present exchange rate is C$ = U.S. $0.78. The 1-year future rate is C$ = U.S. $0.76. The yield on a 1-year U.S. bill is 4%. A yield of __________ on a 1-year Canadian bill will make an investor indifferent between investing in the U.S. bill and the Canadian bill.

Accepted Answer

A)  2.4% 
B)  1.3% 
C)  6.4% 
D)  6.7% 
E)  None of the options are correct. 
A)  2.4% 
B)  1.3% 
C)  6.4% 
D)  6.7% 
E)  None of the options are correct.

Question 3

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

Accepted Answer

A)  foreign exchange risk. 
B)  political risk. 
C)  translation exposure. 
D)  hedging risk. 
A)  foreign exchange risk. 
B)  political risk. 
C)  translation exposure. 
D)  hedging risk.

Question 4

You are a U.S. investor who purchased British securities for 2,200 pounds one year ago when the British pound cost $1.50. No dividends were paid on the British securities in the past year. Your total return based on U.S. dollars was __________ if the value of the securities is now 2,560 pounds and the pound is worth $1.60.

Accepted Answer

A)  16.7% 
B)  20.3% 
C)  24.1% 
D)  41.4% 
E)  None of the options 
A)  16.7% 
B)  20.3% 
C)  24.1% 
D)  41.4% 
E)  None of the options

Question 5

Suppose the 1-year risk-free rate of return in the U.S. is 5%. The current exchange rate is 1 pound = U.S. $1.60. The 1-year forward rate is 1 pound = $1.57. What is the minimum yield on a 1-year risk-free security in Britain that would induce a U.S. investor to invest in the British security?

Accepted Answer

A)  2.44% 
B)  2.50% 
C)  7.00% 
D)  7.62% 
E)  None of the options are correct. 
A)  2.44% 
B)  2.50% 
C)  7.00% 
D)  7.62% 
E)  None of the options are correct.

Question 6

The major concern that has been raised with respect to the weighting of countries within the EAFE index is

Accepted Answer

A)  currency volatilities are not considered in the weighting. 
B)  cross-correlations are not considered in the weighting. 
C)  inflation is not represented in the weighting. 
D)  the weights are not proportional to the asset bases of the respective countries. 
E)  None of the options are correct. 
A)  currency volatilities are not considered in the weighting. 
B)  cross-correlations are not considered in the weighting. 
C)  inflation is not represented in the weighting. 
D)  the weights are not proportional to the asset bases of the respective countries. 
E)  None of the options are correct.

Question 7

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 expected return on your portfolio would be

Accepted Answer

A)  12.0%. 
B)  12.5%. 
C)  13.0%. 
D)  15.5%. 
A)  12.0%. 
B)  12.5%. 
C)  13.0%. 
D)  15.5%.

Question 8

Suppose the 1-year risk-free rate of return in the U.S. is 4% and the 1-year risk-free rate of return in Britain is 6%. The current exchange rate is 1 pound = U.S. $1.67. A 1-year future exchange rate of __________ for the pound would make a U.S. investor indifferent between investing in the U.S. security and investing in the British security.

Accepted Answer

A)  1.6385 
B)  2.0411 
C)  1.7500 
D)  2.3369 
A)  1.6385 
B)  2.0411 
C)  1.7500 
D)  2.3369

Question 9

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 currency selection return contribution.

Accepted Answer

A)  +20% 
B)  ?5% 
C)  +15% 
D)  +5% 
E)  ?10% 
A)  +20% 
B)  ?5% 
C)  +15% 
D)  +5% 
E)  ?10%

Question 10

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

Accepted Answer

A)  Shanghai 
B)  India 
C)  Nikkei 
D)  U.S. 
A)  Shanghai 
B)  India 
C)  Nikkei 
D)  U.S.

Question 11

The manager of Cross Border 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 country selection return contribution.

Accepted Answer

A)  12.5% 
B)  ?12.5% 
C)  11.25% 
D)  ?1.25% 
E)  1.25% 
A)  12.5% 
B)  ?12.5% 
C)  11.25% 
D)  ?1.25% 
E)  1.25%

Question 12

"ADRs" stands for ___________, and "WEBS" stands for ____________.

Accepted Answer

A)  additional dollar returns; weekly equity and bond survey 
B)  additional daily returns; world equity and bond survey 
C)  American dollar returns; world equity and bond statistics 
D)  American depository receipts; world equity benchmark shares 
E)  adjusted dollar returns; weighted equity benchmark shares 
A)  additional dollar returns; weekly equity and bond survey 
B)  additional daily returns; world equity and bond survey 
C)  American dollar returns; world equity and bond statistics 
D)  American depository receipts; world equity benchmark shares 
E)  adjusted dollar returns; weighted equity benchmark shares

As exchange rates change, they

The present exchange rate is C$ = U.S. $0.78. The 1-year future rate is C$ = U.S. $0.76. The yield on a 1-year U.S. bill is 4%. A yield of __________ on a 1-year Canadian bill will make an investor indifferent between investing in the U.S. bill and the Canadian bill.

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

Suppose the 1-year risk-free rate of return in the U.S. is 5%. The current exchange rate is 1 pound = U.S. $1.60. The 1-year forward rate is 1 pound = $1.57. What is the minimum yield on a 1-year risk-free security in Britain that would induce a U.S. investor to invest in the British security?

The major concern that has been raised with respect to the weighting of countries within the EAFE index is

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

"ADRs" stands for _, and "WEBS" stands for __.

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

Filters

Exam 25: International Diversification

As exchange rates change, they

The present exchange rate is C$ = U.S. $0.78. The 1-year future rate is C$ = U.S. $0.76. The yield on a 1-year U.S. bill is 4%. A yield of __________ on a 1-year Canadian bill will make an investor indifferent between investing in the U.S. bill and the Canadian bill.

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

Suppose the 1-year risk-free rate of return in the U.S. is 5%. The current exchange rate is 1 pound = U.S. $1.60. The 1-year forward rate is 1 pound = $1.57. What is the minimum yield on a 1-year risk-free security in Britain that would induce a U.S. investor to invest in the British security?

The major concern that has been raised with respect to the weighting of countries within the EAFE index is

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

"ADRs" stands for ___________, and "WEBS" stands for ____________.

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

Filters

"ADRs" stands for _, and "WEBS" stands for __.