Question 1

The Sharpe Measure of portfolio performance calculates the average return of the portfolio above that of the ________.

Accepted Answer

A) market, per unit of portfolio risk. 
B) market, per unit of beta risk. 
C) risk-free rate, per unit of beta. 
A) market, per unit of portfolio risk. 
B) market, per unit of beta risk. 
C) risk-free rate, per unit of beta. A

Question 2

Draw the domestic portfolio opportunity set being sure to label each axis.Next illustrate and explain how the (domestic)capital market line is formed as part of the two-asset model of the risk-free security plus a portfolio of risky securities..Illustrate and explain how this model changes as we move from a domestic-only portfolio to an international portfolio.What to we anticipate will happen to the risk-return tradeoff?

Accepted Answer

The student should create a graph resembling exhibit 17.5.and demonstrate how the international portfolio of risky assets presents the investor with an opportunity to increase expected return while reducing the variability of return as compared to the purely domestic opportunities.

Question 3

The correlation of returns of the U.S.equity market index with the indexes of equity markets in seventeen other countries over the period 1977-1996 is between

Accepted Answer

A) -1 and -0.50. 
B) 1 and 0.50. 
C) -0.50 and 0.0. 
D) 0.0 and 0.50. 
A) -1 and -0.50. 
B) 1 and 0.50. 
C) -0.50 and 0.0. 
D) 0.0 and 0.50. D

Question 4

If a portfolio is constructed with only two assets,of equal weights,and the correlation coefficient between the two assets is exactly 1.0,which of the following is true?

Accepted Answer

A) The portfolio risk reduction is maximized. 
B) The return of the two assets over time are seen to follow different cycles or paths. 
C) Risk is not reduced at all because of the positive correlation. 
D) None of the above are true. 
A) The portfolio risk reduction is maximized. 
B) The return of the two assets over time are seen to follow different cycles or paths. 
C) Risk is not reduced at all because of the positive correlation. 
D) None of the above are true.

Question 5

The construction of an internationally diversified portfolio combines

Accepted Answer

A) currency and asset risk and return. 
B) country risk with currency return. 
C) credit risk with inflation risk. 
D) asset risk with sovereign risk. 
A) currency and asset risk and return. 
B) country risk with currency return. 
C) credit risk with inflation risk. 
D) asset risk with sovereign risk.

Question 6

TABLE 17.1
Use the information to answer the following question(s).
  
-Refer to Table 17.1.________ appears to have the greatest amount of risk as measured by monthly standard deviation,but ________ has the best return per unit of risk according to the Sharpe Measure.

Accepted Answer

A) United States; Austria 
B) France; Austria 
C) United States; Netherlands 
D) France; Netherlands 
A) United States; Austria 
B) France; Austria 
C) United States; Netherlands 
D) France; Netherlands

Question 7

In some respects,internationally diversified portfolios are different from a domestic portfolio because

Accepted Answer

A) investors may also acquire foreign exchange risk. 
B) international portfolio diversification increases expected return but does not decrease risk. 
C) investors must leave the country to acquire foreign securities. 
D) all of the above. 
A) investors may also acquire foreign exchange risk. 
B) international portfolio diversification increases expected return but does not decrease risk. 
C) investors must leave the country to acquire foreign securities. 
D) all of the above.

Question 8

The standard deviation of the risk-free security is

Accepted Answer

A) less than the standard deviation of the optimal risky domestic portfolio. 
B) less than the standard deviation of the optimal international portfolio. 
C) equal to zero. 
D) all of the above. 
A) less than the standard deviation of the optimal risky domestic portfolio. 
B) less than the standard deviation of the optimal international portfolio. 
C) equal to zero. 
D) all of the above.

Question 9

TABLE 17.1
Use the information to answer the following question(s).
  
-Refer to Table 17.1.What is the value of the Sharpe Measure for France?

Accepted Answer

A) 0.113 
B) 0.0071 
C) Either A or B 
D) Neither A nor B 
A) 0.113 
B) 0.0071 
C) Either A or B 
D) Neither A nor B

Question 10

It is safe to say that because stock market correlations across countries has increased since 1986,that there are no longer diversification benefits to be found from international portfolio diversification.

Accepted Answer

A) True 
 B)False

Question 11

The international diversification of a portfolio

Accepted Answer

A) results in lower diversifiable risk of the portfolio. 
B) decreases the currency risk component of the portfolio. 
C) reduces the systematic risk component of the portfolio. 
D) none of the above. 
A) results in lower diversifiable risk of the portfolio. 
B) decreases the currency risk component of the portfolio. 
C) reduces the systematic risk component of the portfolio. 
D) none of the above.

Question 12

Meryl Janicky,a mutual fund manager,is evaluating the recent performance of the shares of Thames Boats International,a publicly traded company in Great Britain.Ms Janicky's firm has $200,000 invested in Thames Boats and she has gathered the information presented in the following table.What was the return on the security in dollars?

Accepted Answer

A) 227.47% 
B) 10.50% 
C) 12.07% 
D) 16.66% 
A) 227.47% 
B) 10.50% 
C) 12.07% 
D) 16.66%

Question 13

Portfolio diversification is beneficial to the investor because it

Accepted Answer

A) reduces expected returns and increases risk. 
B) increases expected returns. 
C) reduces risk for given levels of return. 
D) none of the above. 
A) reduces expected returns and increases risk. 
B) increases expected returns. 
C) reduces risk for given levels of return. 
D) none of the above.

Question 14

A fully diversified domestic portfolio has a beta of

Accepted Answer

A) 0.0. 
B) 1.0. 
C) -1.0. 
D) Not enough information to answer this question. 
A) 0.0. 
B) 1.0. 
C) -1.0. 
D) Not enough information to answer this question.

Question 15

Portfolio diversification can eliminate 100% of risk.

Accepted Answer

A) True 
 B)False

Question 16

Draw the curve representing the Optimal Domestic Efficient Frontier.Be sure to draw and label the following: The vertical axis and the horizontal axis,the risk-free security,the minimum risk portfolio,the domestic portfolio opportunity set,the optimal domestic portfolio,and the capital market line.Choose a point along the domestic portfolio opportunity set between the optimal domestic portfolio and the minimum risk domestic portfolio and explain why that point is not the optimal risky domestic portfolio for investors to hold.

Accepted Answer

The graph should look like that found on

Question 17

The Sharpe and Treynor measures are each measures of return per unit of risk.

Accepted Answer

A) True 
 B)False

Question 18

Beta may be defined as

Accepted Answer

A) the measure of systematic risk. 
B) a risk measure of a portfolio. 
C) the ratio of the variance of the portfolio to the variance of the market. 
D) all of the above. 
A) the measure of systematic risk. 
B) a risk measure of a portfolio. 
C) the ratio of the variance of the portfolio to the variance of the market. 
D) all of the above.

Question 19

Randomly increasing the number of securities in a portfolio reduces the unsystematic risk but not the systematic risk.

Accepted Answer

A) True 
 B)False

Question 20

A U.S.investor makes an investment in Britain and earns 14% on the investment while the British pound appreciates against the U.S.dollar by 8%.What is the investor's total return?

Accepted Answer

A) 22.00% 
B) 23.12% 
C) 6.00% 
D) 4.88% 
A) 22.00% 
B) 23.12% 
C) 6.00% 
D) 4.88%

The Sharpe Measure of portfolio performance calculates the average return of the portfolio above that of the ________.

The correlation of returns of the U.S.equity market index with the indexes of equity markets in seventeen other countries over the period 1977-1996 is between

If a portfolio is constructed with only two assets,of equal weights,and the correlation coefficient between the two assets is exactly 1.0,which of the following is true?

The construction of an internationally diversified portfolio combines

TABLE 17.1 Use the information to answer the following question(s). -Refer to Table 17.1. appears to have the greatest amount of risk as measured by monthly standard deviation,but has the best return per unit of risk according to the Sharpe Measure.

In some respects,internationally diversified portfolios are different from a domestic portfolio because

The standard deviation of the risk-free security is

TABLE 17.1 Use the information to answer the following question(s). -Refer to Table 17.1.What is the value of the Sharpe Measure for France?

It is safe to say that because stock market correlations across countries has increased since 1986,that there are no longer diversification benefits to be found from international portfolio diversification.

The international diversification of a portfolio

Portfolio diversification is beneficial to the investor because it

A fully diversified domestic portfolio has a beta of

Portfolio diversification can eliminate 100% of risk.

The Sharpe and Treynor measures are each measures of return per unit of risk.

Beta may be defined as

Randomly increasing the number of securities in a portfolio reduces the unsystematic risk but not the systematic risk.

A U.S.investor makes an investment in Britain and earns 14% on the investment while the British pound appreciates against the U.S.dollar by 8%.What is the investor's total return?

Current Multinational Challenges and the Global Economy

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

Current Multinational Financial Challenges: the Credit Crisis of 2007 - 2009

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction and Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Sourcing Equity and Debt Globally

Multinational Tax Management

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Working Capital Management

International Trade Finance

Filters

Exam 17: International Portfolio Theory and Diversification

The Sharpe Measure of portfolio performance calculates the average return of the portfolio above that of the ________.

The correlation of returns of the U.S.equity market index with the indexes of equity markets in seventeen other countries over the period 1977-1996 is between

If a portfolio is constructed with only two assets,of equal weights,and the correlation coefficient between the two assets is exactly 1.0,which of the following is true?

The construction of an internationally diversified portfolio combines

TABLE 17.1 Use the information to answer the following question(s). -Refer to Table 17.1.________ appears to have the greatest amount of risk as measured by monthly standard deviation,but ________ has the best return per unit of risk according to the Sharpe Measure.

In some respects,internationally diversified portfolios are different from a domestic portfolio because

The standard deviation of the risk-free security is

TABLE 17.1 Use the information to answer the following question(s). -Refer to Table 17.1.What is the value of the Sharpe Measure for France?

It is safe to say that because stock market correlations across countries has increased since 1986,that there are no longer diversification benefits to be found from international portfolio diversification.

The international diversification of a portfolio

Portfolio diversification is beneficial to the investor because it

A fully diversified domestic portfolio has a beta of

Portfolio diversification can eliminate 100% of risk.

The Sharpe and Treynor measures are each measures of return per unit of risk.

Beta may be defined as

Randomly increasing the number of securities in a portfolio reduces the unsystematic risk but not the systematic risk.

A U.S.investor makes an investment in Britain and earns 14% on the investment while the British pound appreciates against the U.S.dollar by 8%.What is the investor's total return?

Current Multinational Challenges and the Global Economy

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

Current Multinational Financial Challenges: the Credit Crisis of 2007 - 2009

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction and Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Sourcing Equity and Debt Globally

Multinational Tax Management

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Working Capital Management

International Trade Finance

Filters

TABLE 17.1 Use the information to answer the following question(s). -Refer to Table 17.1. appears to have the greatest amount of risk as measured by monthly standard deviation,but has the best return per unit of risk according to the Sharpe Measure.