Question 1

According to the capital asset pricing model (CAPM),which of the following is true?

Accepted Answer

A) The expected return on an asset is equal to the risk-free rate plus the amount of risk, beta, multiplied by the market risk premium. 
B) The expected return on an asset is equal to the market rate plus the amount of risk, beta, multiplied by the market risk premium. 
C) The expected return on an asset is equal to the risk-free rate plus the amount of risk, standard deviation, multiplied by the market risk premium. 
D) None of the above. 
A) The expected return on an asset is equal to the risk-free rate plus the amount of risk, beta, multiplied by the market risk premium. 
B) The expected return on an asset is equal to the market rate plus the amount of risk, beta, multiplied by the market risk premium. 
C) The expected return on an asset is equal to the risk-free rate plus the amount of risk, standard deviation, multiplied by the market risk premium. 
D) None of the above.

Question 2

The portfolio with the least risk among all those possible in the domestic portfolio opportunity set is called the minimum risk domestic portfolio.

Accepted Answer

A) True 
 B)False

Question 3

The efficient frontier of the domestic portfolio opportunity set

Accepted Answer

A) runs along the extreme left edge of the opportunity set. 
B) represents optimal portfolios of securities that represent minimum risk for a given level of expected portfolio return. 
C) contains the portfolio of risky securities that the rational investor would choose to hold. 
D) all of the above. 
A) runs along the extreme left edge of the opportunity set. 
B) represents optimal portfolios of securities that represent minimum risk for a given level of expected portfolio return. 
C) contains the portfolio of risky securities that the rational investor would choose to hold. 
D) all of the above.

Question 4

Instruction 17.1:
Use the information to answer the following question(s).
In September 2002 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro.
-Refer to Instruction 17.1.How many euros will the U.S.investor acquire with his initial $500,000 investment?

Accepted Answer

A) euro 650,000 
B) euro 370,370 
C) euro 500,000 
D) euro 384,615 
A) euro 650,000 
B) euro 370,370 
C) euro 500,000 
D) euro 384,615

Question 5

In some respects,internationally diversified portfolios are the same in principle as a domestic portfolio because

Accepted Answer

A) the investor is attempting to combine assets that are perfectly correlated. 
B) investors are tying to reduce systematic risk. 
C) investors are trying to reduce the total risk of the portfolio. 
D) all of the above. 
A) the investor is attempting to combine assets that are perfectly correlated. 
B) investors are tying to reduce systematic risk. 
C) investors are trying to reduce the total risk of the portfolio. 
D) all of the above.

Question 6

The ________ connects the risk-free security with the optimal domestic portfolio.

Accepted Answer

A) security market line 
B) capital asset pricing model 
C) capital market line 
D) none of the above 
A) security market line 
B) capital asset pricing model 
C) capital market line 
D) none of the above

Question 7

Capital markets around the world are on average less integrated today than they were 20 years ago.

Accepted Answer

A) True 
 B)False

Question 8

Instruction 17.2:
Use the information to answer the following question(s).
A U.S. investor is considering a portfolio consisting of 60% invested in the U.S. equity index fund and 40% invested in the British equity index fund. The expected returns for the funds are 10% for the U.S. and 8% for the British, standard deviations of 20% for the U.S. and 18% for the British, and a correlation coefficient of 0.15 between the U.S. and British equity funds.
-Refer to Instruction 17.2.What is standard deviation of the proposed portfolio?

Accepted Answer

A) 38.00 
B) 19.20 
C) 19.00 
D) 14.45 
A) 38.00 
B) 19.20 
C) 19.00 
D) 14.45

Question 9

The addition of foreign securities to the domestic portfolio opportunity set shifts the efficient frontier

Accepted Answer

A) down and to the left. 
B) up and to the right. 
C) up and to the left. 
D) down and to the right. 
A) down and to the left. 
B) up and to the right. 
C) up and to the left. 
D) down and to the right.

Question 10

The maximum benefits of portfolio construction are obtained when the correlation between assets is ________.

Accepted Answer

A) -1.0 
B) 0.0 
C) +1.0 
D) none of the above 
A) -1.0 
B) 0.0 
C) +1.0 
D) none of the above

Question 11

Which of the following portfolios could not possibly be located on the efficient frontier of risky portfolios?

Accepted Answer

A) Portfolio 1 with an expected return of 6% and a standard deviation of 6%. 
B) Portfolio 2 with an expected return of 10% and a standard deviation of 12%. 
C) Portfolio 3 with an expected return of 10% and a standard deviation of 8%. 
D) Portfolio 4 with an expected return of 12% and a standard deviation of 20%. 
A) Portfolio 1 with an expected return of 6% and a standard deviation of 6%. 
B) Portfolio 2 with an expected return of 10% and a standard deviation of 12%. 
C) Portfolio 3 with an expected return of 10% and a standard deviation of 8%. 
D) Portfolio 4 with an expected return of 12% and a standard deviation of 20%.

Question 12

The optimal domestic portfolio of risky securities is the portfolio of minimum risk.

Accepted Answer

A) True 
 B)False

Question 13

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 pounds?

Accepted Answer

A) 7.47% 
B) 10.50% 
C) 12.07% 
D) 16.66% 
A) 7.47% 
B) 10.50% 
C) 12.07% 
D) 16.66%

Question 14

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

Accepted Answer

A) 0.197 
B) 0.0109 
C) Either A or B 
D) Neither A nor B 
A) 0.197 
B) 0.0109 
C) Either A or B 
D) Neither A nor B

Question 15

A Canadian-based investor purchases a Standard & Poor's 500 index (SPY)on the American Stock Exchange,in U.S.dollars.Over the course of the year the U.S.dollar appreciates 8% against the Canadian dollar,and the S&P Index rises 22%.The total return to the Canadian investor in Canadian dollar terms is approximately ________.

Accepted Answer

A) 8% 
B) 14% 
C) 22% 
D) 30% 
A) 8% 
B) 14% 
C) 22% 
D) 30%

Question 16

The largest equity market losses of the last 100 years were primarily related to war and terrorism.

Accepted Answer

A) True 
 B)False

Question 17

Instruction 17.1:
Use the information to answer the following question(s).
In September 2002 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro.
-Refer to Instruction 17.1.At the end of the year the investor sells his stock that now has an average price per share of euro 57.What is the investor's average rate of return after converting the stock back into dollars?

Accepted Answer

A) -1.35% 
B) 5.0% 
C) -5.0% 
D) -7.24% 
A) -1.35% 
B) 5.0% 
C) -5.0% 
D) -7.24%

Question 18

Instruction 17.1:
Use the information to answer the following question(s).
In September 2002 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro.
-Refer to Instruction 17.1.At the end of the year the investor sells his stock that now has an average price per share of euro 57.What is the investor's average rate of return before converting the stock back into dollars?

Accepted Answer

A) 5.0% 
B) -3.0% 
C) -5.0% 
D) 3.0% 
A) 5.0% 
B) -3.0% 
C) -5.0% 
D) 3.0%

Question 19

Portfolio theory assumes that investors are risk-averse.This means that investors

Accepted Answer

A) cannot be induced to make risky investments. 
B) prefer more risk to less for a given return. 
C) will accept some risk, but not unnecessary risk. 
D) All of the above are true. 
A) cannot be induced to make risky investments. 
B) prefer more risk to less for a given return. 
C) will accept some risk, but not unnecessary risk. 
D) All of the above are true.

Question 20

Relative to the efficient frontier of risky portfolios,it is impossible to hold a portfolio that is located ________ the efficient frontier.

Accepted Answer

A) to the left of 
B) to the right of 
C) on 
D) to the right or left of 
A) to the left of 
B) to the right of 
C) on 
D) to the right or left of

According to the capital asset pricing model (CAPM),which of the following is true?

The portfolio with the least risk among all those possible in the domestic portfolio opportunity set is called the minimum risk domestic portfolio.

The efficient frontier of the domestic portfolio opportunity set

In some respects,internationally diversified portfolios are the same in principle as a domestic portfolio because

The ________ connects the risk-free security with the optimal domestic portfolio.

Capital markets around the world are on average less integrated today than they were 20 years ago.

The addition of foreign securities to the domestic portfolio opportunity set shifts the efficient frontier

The maximum benefits of portfolio construction are obtained when the correlation between assets is ________.

Which of the following portfolios could not possibly be located on the efficient frontier of risky portfolios?

The optimal domestic portfolio of risky securities is the portfolio of minimum risk.

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

The largest equity market losses of the last 100 years were primarily related to war and terrorism.

Portfolio theory assumes that investors are risk-averse.This means that investors

Relative to the efficient frontier of risky portfolios,it is impossible to hold a portfolio that is located ________ the efficient frontier.

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

According to the capital asset pricing model (CAPM),which of the following is true?

The portfolio with the least risk among all those possible in the domestic portfolio opportunity set is called the minimum risk domestic portfolio.

The efficient frontier of the domestic portfolio opportunity set

In some respects,internationally diversified portfolios are the same in principle as a domestic portfolio because

The ________ connects the risk-free security with the optimal domestic portfolio.

Capital markets around the world are on average less integrated today than they were 20 years ago.

The addition of foreign securities to the domestic portfolio opportunity set shifts the efficient frontier

The maximum benefits of portfolio construction are obtained when the correlation between assets is ________.

Which of the following portfolios could not possibly be located on the efficient frontier of risky portfolios?

The optimal domestic portfolio of risky securities is the portfolio of minimum risk.

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

The largest equity market losses of the last 100 years were primarily related to war and terrorism.

Portfolio theory assumes that investors are risk-averse.This means that investors

Relative to the efficient frontier of risky portfolios,it is impossible to hold a portfolio that is located ________ the efficient frontier.

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