Question 1

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 2

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

Accepted Answer

A) True 
 B)False

Question 3

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 4

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 5

Instruction 16.1:
Use the information to answer 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 16.1. 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 6

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 7

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 significantly 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 significantly because of the positive correlation. 
D)  None of the above are true.

Question 8

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.

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

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

TABLE 16.1
Use the information to answer following question(s).
  
-Refer to Table 16.1. 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

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

Question 16

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 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

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 20

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 logical 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 logical investor would choose to hold. 
D)  all of the above.

Beta may be defined as

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

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

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

________ risk is measured with beta.

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

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

Which of the following statements is NOT true?

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

TABLE 16.1 Use the information to answer following question(s). -Refer to Table 16.1. What is the value of the Treynor Measure for the Netherlands?

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

The correlation coefficient has a range of

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

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

The efficient frontier of the domestic portfolio opportunity set

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Multinational Tax Management

Working Capital Management

Filters

Exam 16: International Portfolio Theory and Diversification

Beta may be defined as

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

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

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

________ risk is measured with beta.

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

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

Which of the following statements is NOT true?

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

TABLE 16.1 Use the information to answer following question(s). -Refer to Table 16.1. What is the value of the Treynor Measure for the Netherlands?

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

The correlation coefficient has a range of

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

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

The efficient frontier of the domestic portfolio opportunity set

Globalization and the Multinational Enterprise

Financial Goals and Corporate Governance

The International Monetary System

The Balance of Payments

The Foreign Exchange Market

International Parity Conditions

Foreign Exchange Rate Determination and Forecasting

Foreign Currency Derivatives

Transaction Exposure

Operating Exposure

Translation Exposure

Global Cost and Availability of Capital

Sourcing Equity Capital Globally

Financial Structure and International Debt

Interest Rate and Currency Swaps

Foreign Direct Investment Theory and Strategy

Political Risk Assessment and Management

Multinational Capital Budgeting

International Trade Finance

Multinational Tax Management

Working Capital Management

Filters