Question 1

Which of the following countries has an equity index that lies on the efficient frontier generated by allowing international diversification

Accepted Answer

A) The United States 
B) The United Kingdom 
C) Japan 
D) Norway 
E) None of the options-each of these countries' indexes fall inside the efficient frontier. 
A) The United States 
B) The United Kingdom 
C) Japan 
D) Norway 
E) None of the options-each of these countries' indexes fall inside the efficient frontier. E

Question 2

The developed country with the highest average U.S.dollar equity-market excess return between 2002-2011 is

Accepted Answer

A) Japan. 
B) Norway. 
C) Austria. 
D) U.S. 
A) Japan. 
B) Norway. 
C) Austria. 
D) U.S. B

Question 3

Suppose the 1-year risk-free rate of return in the U.S.is 5%.The current exchange rate is 1 pound = U.S.$1.60.The 1-year forward rate is 1 pound = $1.57.What is the minimum yield on a 1-year risk-free security in Britain that would induce a U.S.investor to invest in the British security

Accepted Answer

A) 2.44% 
B) 2.50% 
C) 7.00% 
D) 7.62% 
E) None of the options 
A) 2.44% 
B) 2.50% 
C) 7.00% 
D) 7.62% 
E) None of the options C

Question 4

WEBS portfolios

Accepted Answer

A) are passively managed. 
B) are shares that can be sold by investors. 
C) are free from brokerage commissions. 
D) are passively managed and are shares that can be sold by investors. 
E) All of the options. 
A) are passively managed. 
B) are shares that can be sold by investors. 
C) are free from brokerage commissions. 
D) are passively managed and are shares that can be sold by investors. 
E) All of the options.

Question 5

The major concern that has been raised with respect to the weighting of countries within the EAFE index is

Accepted Answer

A) currency volatilities are not considered in the weighting. 
B) cross-correlations are not considered in the weighting. 
C) inflation is not represented in the weighting. 
D) the weights are not proportional to the asset bases of the respective countries. 
E) None of the options 
A) currency volatilities are not considered in the weighting. 
B) cross-correlations are not considered in the weighting. 
C) inflation is not represented in the weighting. 
D) the weights are not proportional to the asset bases of the respective countries. 
E) None of the options

Question 6

__________ are mutual funds that invest in one country only.

Accepted Answer

A) ADRs 
B) ECUs 
C) Single-country funds 
D) All of the options 
E) None of the options 
A) ADRs 
B) ECUs 
C) Single-country funds 
D) All of the options 
E) None of the options

Question 7

The developed country with the lowest average local-currency equity-market excess return between 2002-2011 is

Accepted Answer

A) Greece. 
B) Korea. 
C) U.K. 
D) U.S. 
A) Greece. 
B) Korea. 
C) U.K. 
D) U.S.

Question 8

The emerging market country with the highest average local-currency equity-market excess return between 2002-2011 is

Accepted Answer

A) China. 
B) Colombia. 
C) Poland. 
D) Turkey. 
A) China. 
B) Colombia. 
C) Poland. 
D) Turkey.

Question 9

The __________ equity market had the lowest average local currency excess return between 2002-2011.

Accepted Answer

A) Colombian 
B) Greece 
C) U.K. 
D) U.S. 
A) Colombian 
B) Greece 
C) U.K. 
D) U.S.

Question 10

The __________ equity market had the lowest average local currency standard deviation of excess returns between 2002-2011.

Accepted Answer

A) Turkish 
B) Finnish 
C) Indonesian 
D) Australia 
A) Turkish 
B) Finnish 
C) Indonesian 
D) Australia

Question 11

__________ refers to the possibility of expropriation of assets, changes in tax policy, and the possibility of restrictions on foreign exchange transactions.

Accepted Answer

A) Default risk 
B) Foreign exchange risk 
C) Market risk 
D) Political risk 
E) None of the options 
A) Default risk 
B) Foreign exchange risk 
C) Market risk 
D) Political risk 
E) None of the options

Question 12

The performance of an internationally diversified portfolio may be affected by

Accepted Answer

A) country selection. 
B) currency selection. 
C) stock selection. 
D) All of the options 
E) None of the options 
A) country selection. 
B) currency selection. 
C) stock selection. 
D) All of the options 
E) None of the options

Question 13

The developed country with the highest average local-currency equity-market excess return between 2002-2011 is

Accepted Answer

A) Japan. 
B) Norway. 
C) U.K. 
D) U.S. 
A) Japan. 
B) Norway. 
C) U.K. 
D) U.S.

Question 14

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 15

Assume there is a fixed exchange rate between the Canadian and U.S.dollar.The expected return and standard deviation of return on the U.S.stock market are 18% and 15%, respectively.The expected return and standard deviation on the Canadian stock market are 13% and 20%, respectively.The covariance of returns between the U.S.and Canadian stock markets is 1.5%. If you invested 50% of your money in the Canadian stock market and 50% in the U.S.stock market, the standard deviation of return of your portfolio would be

Accepted Answer

A) 12.53%. 
B) 15.21%. 
C) 17.50%. 
D) 18.75%. 
A) 12.53%. 
B) 15.21%. 
C) 17.50%. 
D) 18.75%.

Question 16

The __________ index is a widely used index of non-U.S.stocks.

Accepted Answer

A) CBOE 
B) Dow Jones 
C) EAFE 
D) All of the options 
E) None of the options 
A) CBOE 
B) Dow Jones 
C) EAFE 
D) All of the options 
E) None of the options

Question 17

The manager of Quantitative International Fund uses EAFE as a benchmark.Last year's performance for the fund and the benchmark were as follows:   Calculate Quantitative's currency selection return contribution.

Accepted Answer

A) +20% 
B) -5% 
C) +15% 
D) +5% 
E) -10% 
A) +20% 
B) -5% 
C) +15% 
D) +5% 
E) -10%

Question 18

Exchange rate risk

Accepted Answer

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

Question 19

Suppose the 1-year risk-free rate of return in the U.S.is 4% and the 1-year risk-free rate of return in Britain is 7%.The current exchange rate is 1 pound = U.S.$1.65.A 1-year future exchange rate of __________ for the pound would make a U.S.investor indifferent between investing in the U.S.security and investing in the British security.

Accepted Answer

A) 1.6037 
B) 2.0411 
C) 1.7500 
D) 2.3369 
A) 1.6037 
B) 2.0411 
C) 1.7500 
D) 2.3369

Question 20

The __________ equity market had the lowest average U.S.dollar standard deviation of excess returns between 2002-2011.

Accepted Answer

A) Turkish 
B) U.S. 
C) Indonesian 
D) U.K. 
A) Turkish 
B) U.S. 
C) Indonesian 
D) U.K.

Exam 25: International Diversification

Which of the following countries has an equity index that lies on the efficient frontier generated by allowing international diversification

The developed country with the highest average U.S.dollar equity-market excess return between 2002-2011 is

Suppose the 1-year risk-free rate of return in the U.S.is 5%.The current exchange rate is 1 pound = U.S.$1.60.The 1-year forward rate is 1 pound = $1.57.What is the minimum yield on a 1-year risk-free security in Britain that would induce a U.S.investor to invest in the British security

WEBS portfolios

The major concern that has been raised with respect to the weighting of countries within the EAFE index is

__________ are mutual funds that invest in one country only.

The developed country with the lowest average local-currency equity-market excess return between 2002-2011 is

The emerging market country with the highest average local-currency equity-market excess return between 2002-2011 is

The __________ equity market had the lowest average local currency excess return between 2002-2011.

The __________ equity market had the lowest average local currency standard deviation of excess returns between 2002-2011.

__________ refers to the possibility of expropriation of assets, changes in tax policy, and the possibility of restrictions on foreign exchange transactions.

The performance of an internationally diversified portfolio may be affected by

The developed country with the highest average local-currency equity-market excess return between 2002-2011 is

The average country equity market share is

The __________ index is a widely used index of non-U.S.stocks.

The manager of Quantitative International Fund uses EAFE as a benchmark.Last year's performance for the fund and the benchmark were as follows: Calculate Quantitative's currency selection return contribution.

Exchange rate risk

The __________ equity market had the lowest average U.S.dollar standard deviation of excess returns between 2002-2011.

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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