Question 1

The Treynor 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) risk-free rate, per unit of beta. 
C) none of the above. 
A) market, per unit of portfolio risk. 
B) risk-free rate, per unit of beta. 
C) none of the above.

Question 2

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 an average price of euro 60/share,how many shares of stock will the investor be able to purchase?

Accepted Answer

A) 8333 shares 
B) 6410 shares 
C) 6173 shares 
D) 10,833 shares 
A) 8333 shares 
B) 6410 shares 
C) 6173 shares 
D) 10,833 shares

Question 3

Which of the following is NOT an important question regarding the validity of a global version of the capital asset pricing model (CAPM)?

Accepted Answer

A) barriers to the free and open movement of capital across boundaries 
B) difficulties in estimating a global portfolio, i.e., trading limitations, illiquid markets, and incomplete information 
C) the lack of a single true worldwide risk-free security 
D) all of the above 
A) barriers to the free and open movement of capital across boundaries 
B) difficulties in estimating a global portfolio, i.e., trading limitations, illiquid markets, and incomplete information 
C) the lack of a single true worldwide risk-free security 
D) all of the above

Question 4

Inter-country correlations among the worlds largest capitalistic economies over the last century illustrate that the correlation results for the first 50 years were good predictors for correlations for the next 50 years.

Accepted Answer

A) True 
 B)False

Question 5

The standard deviation of a portfolio is the weighted average standard deviations of the individual assets.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is NOT true?

Accepted Answer

A) International diversification benefits induce investors to demand foreign securities. 
B) An international security adds value to a portfolio if it reduces risk without reducing return. 
C) Investors will demand a security that adds value. 
D) All of the above are true. 
A) International diversification benefits induce investors to demand foreign securities. 
B) An international security adds value to a portfolio if it reduces risk without reducing return. 
C) Investors will demand a security that adds value. 
D) All of the above are true.

Question 7

The Sharpe measure uses ________ as the measure of risk and the Treynor measure uses ________ as the measure of risk.

Accepted Answer

A) standard deviation; variance 
B) beta; variance 
C) standard deviation; beta 
D) beta; standard deviation 
A) standard deviation; variance 
B) beta; variance 
C) standard deviation; beta 
D) beta; standard deviation

Question 8

If an investor is able to determine a global beta for his portfolio and holds a portfolio that is well-diversified with international investments,which performance measure is more appropriate,the Sharpe Measure or the Treynor Measure? Why? Explain each performance measure.

Accepted Answer

The Sharpe Measure is the ratio of exces

Question 9

________ risk is measured with beta.

Accepted Answer

A) Systematic 
B) Unsystematic 
C) International 
D) Domestic 
A) Systematic 
B) Unsystematic 
C) International 
D) Domestic

Question 10

A well-diversified portfolio is only about ________ as risky as the typical individual stock.

Accepted Answer

A) 8% 
B) 19% 
C) 27% 
D) 52% 
A) 8% 
B) 19% 
C) 27% 
D) 52%

Question 11

Which of the following is a potential obstacle to international diversification of portfolios?

Accepted Answer

A) high transaction costs 
B) higher information costs 
C) both A and B 
D) none of the above 
A) high transaction costs 
B) higher information costs 
C) both A and B 
D) none of the above

Question 12

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 the expected return of the proposed portfolio?

Accepted Answer

A) 9.2% 
B) 9.0% 
C) 19.2% 
D) 19% 
A) 9.2% 
B) 9.0% 
C) 19.2% 
D) 19%

Question 13

The graph for the efficient frontier has beta on the vertical axis and standard deviation of the horizontal axis.

Accepted Answer

A) True 
 B)False

Question 14

The correlation coefficient has a range of

Accepted Answer

A) 0 to 1. 
B) 1 to 10. 
C) -1 to 1. 
D) -1 to 0. 
A) 0 to 1. 
B) 1 to 10. 
C) -1 to 1. 
D) -1 to 0.

Question 15

The Sharpe and Treynor Measures tend to be consistent in their ranking of portfolios when the portfolios

Accepted Answer

A) are poorly diversified. 
B) are properly diversified. 
C) contain only U.S. equity investments. 
D) none of the above. 
A) are poorly diversified. 
B) are properly diversified. 
C) contain only U.S. equity investments. 
D) none of the above.

Question 16

Unsystematic risk is

Accepted Answer

A) the remaining risk in a well-diversified portfolio. 
B) measured with beta. 
C) diversifiable. 
D) all of the above. 
A) the remaining risk in a well-diversified portfolio. 
B) measured with beta. 
C) diversifiable. 
D) all of the above.

Question 17

An internationally diversified portfolio

Accepted Answer

A) should result in a portfolio with a lower beta than a purely domestic portfolio. 
B) has the same overall risk shape as a purely domestic portfolio. 
C) is only about 12% as risky as the typical individual stock. 
D) all of the above. 
A) should result in a portfolio with a lower beta than a purely domestic portfolio. 
B) has the same overall risk shape as a purely domestic portfolio. 
C) is only about 12% as risky as the typical individual stock. 
D) all of the above.

The Treynor Measure of portfolio performance calculates the average return of the portfolio above that of the

Which of the following is NOT an important question regarding the validity of a global version of the capital asset pricing model (CAPM)?

Inter-country correlations among the worlds largest capitalistic economies over the last century illustrate that the correlation results for the first 50 years were good predictors for correlations for the next 50 years.

The standard deviation of a portfolio is the weighted average standard deviations of the individual assets.

Which of the following statements is NOT true?

The Sharpe measure uses as the measure of risk and the Treynor measure uses as the measure of risk.

If an investor is able to determine a global beta for his portfolio and holds a portfolio that is well-diversified with international investments,which performance measure is more appropriate,the Sharpe Measure or the Treynor Measure? Why? Explain each performance measure.

________ risk is measured with beta.

A well-diversified portfolio is only about ________ as risky as the typical individual stock.

Which of the following is a potential obstacle to international diversification of portfolios?

The graph for the efficient frontier has beta on the vertical axis and standard deviation of the horizontal axis.

The correlation coefficient has a range of

The Sharpe and Treynor Measures tend to be consistent in their ranking of portfolios when the portfolios

Unsystematic risk is

An internationally diversified portfolio

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 Treynor Measure of portfolio performance calculates the average return of the portfolio above that of the

Which of the following is NOT an important question regarding the validity of a global version of the capital asset pricing model (CAPM)?

Inter-country correlations among the worlds largest capitalistic economies over the last century illustrate that the correlation results for the first 50 years were good predictors for correlations for the next 50 years.

The standard deviation of a portfolio is the weighted average standard deviations of the individual assets.

Which of the following statements is NOT true?

The Sharpe measure uses ________ as the measure of risk and the Treynor measure uses ________ as the measure of risk.

If an investor is able to determine a global beta for his portfolio and holds a portfolio that is well-diversified with international investments,which performance measure is more appropriate,the Sharpe Measure or the Treynor Measure? Why? Explain each performance measure.

________ risk is measured with beta.

A well-diversified portfolio is only about ________ as risky as the typical individual stock.

Which of the following is a potential obstacle to international diversification of portfolios?

The graph for the efficient frontier has beta on the vertical axis and standard deviation of the horizontal axis.

The correlation coefficient has a range of

The Sharpe and Treynor Measures tend to be consistent in their ranking of portfolios when the portfolios

Unsystematic risk is

An internationally diversified portfolio

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

The Sharpe measure uses as the measure of risk and the Treynor measure uses as the measure of risk.