Question 1

Using the S & P500 portfolio as a proxy of the market portfolio

Accepted Answer

A)  is appropriate because U.S.securities represent more than 60% of world equities. 
B)  is appropriate because most U.S.investors are primarily interested in U.S.securities. 
C)  is appropriate because most U.S.and non-U.S.investors are primarily interested in U.S.securities. 
D)  is inappropriate because U.S.securities make up less than 50% of world equities. 
E)  is inappropriate because the average U.S.investor has less than 20% of her portfolio in non-U.S.equities. 
A)  is appropriate because U.S.securities represent more than 60% of world equities. 
B)  is appropriate because most U.S.investors are primarily interested in U.S.securities. 
C)  is appropriate because most U.S.and non-U.S.investors are primarily interested in U.S.securities. 
D)  is inappropriate because U.S.securities make up less than 50% of world equities. 
E)  is inappropriate because the average U.S.investor has less than 20% of her portfolio in non-U.S.equities.

Question 2

__________ are mutual funds that invest in one country only.

Accepted Answer

A)  ADRs 
B)  ECUs 
C)  single-country funds 
D)  all of these 
E)  none of these 
A)  ADRs 
B)  ECUs 
C)  single-country funds 
D)  all of these 
E)  none of these

Question 3

The average country equity market share is

Accepted Answer

A)  less than 2% 
B)  between 3% and 4% 
C)  between 5% and 7% 
D)  between 7% and 8% 
E)  greater than 8% 
A)  less than 2% 
B)  between 3% and 4% 
C)  between 5% and 7% 
D)  between 7% and 8% 
E)  greater than 8%

Question 4

Exchange rate risk

Accepted Answer

A)  results from changes in the exchange rates in the currencies of the investor and the country in which the investment is made. 
B)  can be hedged by using a forward or futures contract in foreign exchange. 
C)  cannot be eliminated. 
D)  a and c. 
E)  a and b. 
A)  results from changes in the exchange rates in the currencies of the investor and the country in which the investment is made. 
B)  can be hedged by using a forward or futures contract in foreign exchange. 
C)  cannot be eliminated. 
D)  a and c. 
E)  a and b.

Question 5

A 1988 study by Richard Roll showed that

Accepted Answer

A)  international equity markets move completely independently. 
B)  a world factor seems to be present in the returns of all countries. 
C)  there is no value in international diversification. 
D)  both a and c are true. 
E)  all of these are true. 
A)  international equity markets move completely independently. 
B)  a world factor seems to be present in the returns of all countries. 
C)  there is no value in international diversification. 
D)  both a and c are true. 
E)  all of these are true.

Question 6

Investors looking for effective international diversification should

Accepted Answer

A)  invest about 60% of their money in foreign stocks. 
B)  invest the same percentage of their money in foreign stocks that foreign equities represent in the world equity market. 
C)  frequently hedge currency exposure. 
D)  both a and b. 
E)  none of these. 
A)  invest about 60% of their money in foreign stocks. 
B)  invest the same percentage of their money in foreign stocks that foreign equities represent in the world equity market. 
C)  frequently hedge currency exposure. 
D)  both a and b. 
E)  none of these.

Question 7

Of developed countries,the __________ equity market had the highest correlation with the U.S.index between 1999 and 2008.

Accepted Answer

A)  Japanese 
B)  Chinese 
C)  U.K. 
D)  Canadian 
E)  none of these 
A)  Japanese 
B)  Chinese 
C)  U.K. 
D)  Canadian 
E)  none of these

Question 8

Suppose the 1-year risk-free rate of return in Canada is 2%.The current exchange rate is 1 pound = C $1.60.The 1-year forward rate is 1 pound = C $1.57.What is the minimum yield on a 1-year risk-free security in Britain that would induce a Canadian investor to invest in the British security?

Accepted Answer

A)  -1.88% 
B)  .09% 
C)  1.91% 
D)  3.95% 
E)  none of these 
A)  -1.88% 
B)  .09% 
C)  1.91% 
D)  3.95% 
E)  none of these

Question 9

Calculate Da Gama's country selection return contribution.

Accepted Answer

A)  12.5% 
B)  -12.5% 
C)  11.25% 
D)  -1.25% 
E)  1.25%
EAFE: (.30)(10%)+ (.10)(5%)+ (.60)(15%)= 12.5%;Da Gama: (.25)(10%)+ (.25)(5%)+ (.50)(15%)= 11.25%;Loss of 1.25% relative to EAFE. 
A)  12.5% 
B)  -12.5% 
C)  11.25% 
D)  -1.25% 
E)  1.25%
EAFE: (.30)(10%)+ (.10)(5%)+ (.60)(15%)= 12.5%;Da Gama: (.25)(10%)+ (.25)(5%)+ (.50)(15%)= 11.25%;Loss of 1.25% relative to EAFE.

Question 10

WEBS portfolios

Accepted Answer

A)  are passively managed. 
B)  are shares that can be sold by investors. 
C)  are free from brokerage commissions. 
D)  a and b 
E)  a,b,and c 
A)  are passively managed. 
B)  are shares that can be sold by investors. 
C)  are free from brokerage commissions. 
D)  a and b 
E)  a,b,and c

Question 11

The interest rate on a 1-year Canadian security is 1.8%.The current exchange rate is C$= US $1.035.The 1-year forward rate is C$= US $1.05.The return (denominated in U.S.$)that a U.S.investor can earn by investing in the Canadian security is _________.

Accepted Answer

A)  3.27% 
B)  1.45% 
C)  1.045% 
D)  0.045% 
E)  none of these 
A)  3.27% 
B)  1.45% 
C)  1.045% 
D)  0.045% 
E)  none of these

Question 12

Calculate Da Gama's stock selection return contribution.

Accepted Answer

A)  1.0% 
B)  -1.0% 
C)  3.0% 
D)  0.25% 
E)  none of these. 
A)  1.0% 
B)  -1.0% 
C)  3.0% 
D)  0.25% 
E)  none of these.

Question 13

International investing

Accepted Answer

A)  cannot be measured against a passive benchmark,such as the TSX Composite. 
B)  can be measured against a widely used index of non-U.S.stocks,the EAFE index (Europe,Australia,Far East). 
C)  can be measured against international indexes computed by Morgan Stanley,Salomon Brothers,First Boston and Goldman,Sachs,among others. 
D)  b and c. 
E)  none of these. 
A)  cannot be measured against a passive benchmark,such as the TSX Composite. 
B)  can be measured against a widely used index of non-U.S.stocks,the EAFE index (Europe,Australia,Far East). 
C)  can be measured against international indexes computed by Morgan Stanley,Salomon Brothers,First Boston and Goldman,Sachs,among others. 
D)  b and c. 
E)  none of these.

Question 14

A study over the period 2001-2005 showed that most correlations between the U.S.stock index and stock-and bond-index portfolios of other countries were

Accepted Answer

A)  negative 
B)  positive 
C)  positive for stocks and negative for bonds 
D)  negative for stocks and positive for bonds 
E)  none of these 
A)  negative 
B)  positive 
C)  positive for stocks and negative for bonds 
D)  negative for stocks and positive for bonds 
E)  none of these

Question 15

The straightforward generalization of the simple CAPM to international stocks is problematic because _________.

Accepted Answer

A)  inflation risk perceptions by different investors in different countries will differ as consumption baskets differ 
B)  investors in different countries view exchange rate risk from the perspective of different domestic currencies 
C)  taxes,transaction costs and capital barriers across countries make it difficult for investor to hold a world index portfolio 
D)  all of these 
E)  none of these. 
A)  inflation risk perceptions by different investors in different countries will differ as consumption baskets differ 
B)  investors in different countries view exchange rate risk from the perspective of different domestic currencies 
C)  taxes,transaction costs and capital barriers across countries make it difficult for investor to hold a world index portfolio 
D)  all of these 
E)  none of these.

Question 16

The correlation coefficients between the returns on a broad index of Canadian stocks and the returns on indices of the stocks of other industrialized countries are,in general,_________,while the correlation coefficients between the returns on various diversified portfolios of Canadian stocks are,in general,_________.

Accepted Answer

A)  less than 0,greater than 0 
B)  greater than 0,less than 0 
C)  less than 0.8,greater than 0.8 
D)  greater than 0.8,less than 0.8 
E)  less than 0,less than 0 
A)  less than 0,greater than 0 
B)  greater than 0,less than 0 
C)  less than 0.8,greater than 0.8 
D)  greater than 0.8,less than 0.8 
E)  less than 0,less than 0

Question 17

When an investor adds international stocks to her portfolio

Accepted Answer

A)  it will raise her risk relative to the risk she would face just holding U.S.stocks. 
B)  she can reduce its risk relative to the risk she would face just holding U.S.stocks. 
C)  she will increase her expected return,but must also take on more risk. 
D)  it will have no significant impact on either the risk or the return of her portfolio. 
E)  she needs to seek professional management because she doesn't have access to international stocks on her own. 
A)  it will raise her risk relative to the risk she would face just holding U.S.stocks. 
B)  she can reduce its risk relative to the risk she would face just holding U.S.stocks. 
C)  she will increase her expected return,but must also take on more risk. 
D)  it will have no significant impact on either the risk or the return of her portfolio. 
E)  she needs to seek professional management because she doesn't have access to international stocks on her own.

Question 18

The EAFE is

Accepted Answer

A)  the East Asia Foreign Equity index. 
B)  the Economic Advisor's Foreign Estimator index. 
C)  the European and Asian Foreign Equity index. 
D)  The Eastern Asian and French Equity index. 
E)  the European,Australian,Far East index. 
A)  the East Asia Foreign Equity index. 
B)  the Economic Advisor's Foreign Estimator index. 
C)  the European and Asian Foreign Equity index. 
D)  The Eastern Asian and French Equity index. 
E)  the European,Australian,Far East index.

Question 19

Security analysis of foreign companies is complicated by _________.

Accepted Answer

A)  differences in accounting for depreciation 
B)  differences in contingency reserve practices 
C)  differences in tax reporting practices 
D)  differences in calculating the number of shares used to compute P/E ratios 
E)  all of these. 
A)  differences in accounting for depreciation 
B)  differences in contingency reserve practices 
C)  differences in tax reporting practices 
D)  differences in calculating the number of shares used to compute P/E ratios 
E)  all of these.

Question 20

Aunt Gunda holds her portfolio 100% in Canadian securities.She tells you that she believes foreign investing can be extremely hazardous to her portfolio.She's not sure about the details,but has "heard some things".Discuss this idea with Aunt Gunda by listing three objections you have heard from your clients who have similar fears.Explain each of the objections is subject to faulty reasoning.

Accepted Answer

A few of the factors students may mentio

Exam 23: International Finance and Investments: Understanding Foreign Markets and Risks

Using the S & P500 portfolio as a proxy of the market portfolio

__________ are mutual funds that invest in one country only.

The average country equity market share is

Exchange rate risk

A 1988 study by Richard Roll showed that

Investors looking for effective international diversification should

Of developed countries,the __________ equity market had the highest correlation with the U.S.index between 1999 and 2008.

Suppose the 1-year risk-free rate of return in Canada is 2%.The current exchange rate is 1 pound = C $1.60.The 1-year forward rate is 1 pound = C $1.57.What is the minimum yield on a 1-year risk-free security in Britain that would induce a Canadian investor to invest in the British security?

Calculate Da Gama's country selection return contribution.

WEBS portfolios

The interest rate on a 1-year Canadian security is 1.8%.The current exchange rate is C$= US $1.035.The 1-year forward rate is C$= US $1.05.The return (denominated in U.S.$)that a U.S.investor can earn by investing in the Canadian security is _________.

Calculate Da Gama's stock selection return contribution.

International investing

A study over the period 2001-2005 showed that most correlations between the U.S.stock index and stock-and bond-index portfolios of other countries were

The straightforward generalization of the simple CAPM to international stocks is problematic because _________.

When an investor adds international stocks to her portfolio

The EAFE is

Security analysis of foreign companies is complicated by _________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

Filters