Question 1

With regard to the past price performance of closed end mutual funds

Accepted Answer

A) most funds have traded at both a premium and a discount to NAV. 
B) most funds trade on a stock exchange just like a publicly traded corporation. 
C) suggests the risk-return characteristics can be quite different from those of the securities underlying the fund. 
D) all of the above 
A) most funds have traded at both a premium and a discount to NAV. 
B) most funds trade on a stock exchange just like a publicly traded corporation. 
C) suggests the risk-return characteristics can be quite different from those of the securities underlying the fund. 
D) all of the above

Question 2

Foreign equities as a proportion of U.S.investors' portfolio wealth rose from about 1 percent in the early 1980s to about ____________ by 2007.

Accepted Answer

A) 10% 
B) 23% 
C) 33% 
D) 67% 
A) 10% 
B) 23% 
C) 33% 
D) 67%

Question 3

If the investor hedges the exchange rate risk when investing internationally

Accepted Answer

A) the risk-return efficiency is likely to be superior. 
B) the expected return to the U.S.dollar investor is approximately the same whether the investor hedges the exchange rate risk in the investment, or remains unhedged. 
C) to the extent that the investor establishes an effective hedge to eliminate exchange rate uncertainty, the risk will be reduced. 
D) all of the above 
A) the risk-return efficiency is likely to be superior. 
B) the expected return to the U.S.dollar investor is approximately the same whether the investor hedges the exchange rate risk in the investment, or remains unhedged. 
C) to the extent that the investor establishes an effective hedge to eliminate exchange rate uncertainty, the risk will be reduced. 
D) all of the above

Question 4

The degree of home bias varies across investors

Accepted Answer

A) wealthier, more experienced, and sophisticated investors are less likely to exhibit home bias. 
B) wealthier, more experienced, and sophisticated investors are more likely to exhibit home bias. 
C) wealthier, more experienced, and sophisticated investors are less likely to invest in foreign securities. 
D) both b) and c) 
A) wealthier, more experienced, and sophisticated investors are less likely to exhibit home bias. 
B) wealthier, more experienced, and sophisticated investors are more likely to exhibit home bias. 
C) wealthier, more experienced, and sophisticated investors are less likely to invest in foreign securities. 
D) both b) and c)

Question 5

The stock market of country A has an expected return of 5%, and standard deviation of expected return of 8%. The stock market of country B has an expected return of 15% and standard deviation of expected return of 10%.
-Find the expected return of a portfolio with half invested in A and half invested in B.

Accepted Answer

The answer of The stock market of country A has...

Question 6

The return and variance of return to a U.S.dollar investor from investing in individual foreign security i are given by:

Accepted Answer

A) Ri$ = (1 + Ri)(1 + ei) - 1 and Var(Ri$) = Var(Ri) 
B) Ri$ = Ri + ei and Var(Ri$) = Var(Ri) + Var(ei) 
C) Ri$ = (1 + Ri)(1 + ei) - 1 and Var(Ri$) = Var(Ri) + Var(ei) + 2Cov(Ri,ei) 
D) None of the above 
A) Ri$ = (1 + Ri)(1 + ei) - 1 and Var(Ri$) = Var(Ri) 
B) Ri$ = Ri + ei and Var(Ri$) = Var(Ri) + Var(ei) 
C) Ri$ = (1 + Ri)(1 + ei) - 1 and Var(Ri$) = Var(Ri) + Var(ei) + 2Cov(Ri,ei) 
D) None of the above

Question 7

Emerald Energy is an oil exploration and production company that trades on the London stock market.Assume that when purchased by an international investor the stock's price and the exchange rate were £5 and £0.64/$1.00 respectively.At selling time,one year after the purchase date,they were £6 and £0.60/$1.00.Calculate the investor's annual percentage rate of return in terms of the U.S.dollars.

Accepted Answer

A) 0.20% 
B) 20.00% 
C) 1.28% 
D) 28.00% 
A) 0.20% 
B) 20.00% 
C) 1.28% 
D) 28.00%

Question 8

A 5%-annual coupon British has a par value of £1,000,matures in five years,and has a yield to maturity of 4%.The current exchange rate is $2.00 = £1.00 and inflation is forecast at 3% in the U.S.and 2% in the U.K.per year for the next five years.If a dollar-based investor used forward contracts to redenominate this bond into dollars,what would be his rate of return?

Accepted Answer

A) 5% 
B) 6% 
C) 7% 
D) 8% 
A) 5% 
B) 6% 
C) 7% 
D) 8%

Question 9

Emerald Energy is an oil exploration and production company that trades on the London stock market.Over the past year,the stock has enjoyed a 20 percent return in pound terms,but over the same period,the exchange rate has fallen from $2.00 = £1 to $1.80 = £1.Calculate the investor's annual percentage rate of return in terms of the U.S.dollars.

Accepted Answer

A) 3.5% 
B) 9.25% 
C) 8% 
D) There is not enough information to compute the investor's annual percentage rate of return in terms of the U.S.dollars. 
A) 3.5% 
B) 9.25% 
C) 8% 
D) There is not enough information to compute the investor's annual percentage rate of return in terms of the U.S.dollars.

Question 10

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a $50 American stock on margin with only 40% down and 60% borrowed.The stock pays a $0.30 quarterly dividend,and after one year the investment sells for $54 the exchange has changed from €.625 per dollar to €.6875 per dollar.The interest on the margin loan is 1% per year.The margin loan is denominated in dollars.

Accepted Answer

Our investor's initial endowment is $16,

Question 11

Consider a simple exchange risk hedging strategy in which the U.S.dollar based investor sells the expected foreign currency proceeds of a risky investment forward.Although the expected foreign investment proceeds will be converted into U.S.dollars at the known forward exchange rate under this strategy,the unexpected foreign investment proceeds

Accepted Answer

A) will have to be converted into U.S.dollars at the uncertain forward spot exchange rate. 
B) will have to be converted into U.S.dollars at the uncertain future spot exchange rate. 
C) will have to be converted into U.S.dollars at the uncertain swap exchange rate. 
D) none of the above 
A) will have to be converted into U.S.dollars at the uncertain forward spot exchange rate. 
B) will have to be converted into U.S.dollars at the uncertain future spot exchange rate. 
C) will have to be converted into U.S.dollars at the uncertain swap exchange rate. 
D) none of the above

Question 12

Exchange rate fluctuations contribute to the risk of foreign investment through three possible channels: (i)- the volatility of the investment due to the volatility of the exchange rate
(ii)- the contribution of the cross-product term
(iii)- its covariance with the local market returns
Which of the following contributes and accounts for most of the volatility?

Accepted Answer

A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) only (ii) 
A) (i) and (ii) 
B) (ii) and (iii) 
C) (i) and (iii) 
D) only (ii)

Question 13

The stock market of country A has an expected return of 8%, and standard deviation of expected return of 5%. The stock market of country B has an expected return of 16% and standard deviation of expected return of 10%.
-Is it reasonable to conclude that your portfolio is on the efficient frontier? If not,then prove your point by finding just one portfolio weighting between A and B that offers more return with less risk.If you think it is on the efficient frontier,why do you think this? No points for guessing.

Accepted Answer

The answer of The stock market of country A has...

Question 14

A closed end mutual fund

Accepted Answer

A) invests in bonds of a particular maturity, when they mature, the fund closes. 
B) trades on a stock exchange just like a publicly traded corporation. 
C) always trades at Net Asset Value. 
D) all of the above 
A) invests in bonds of a particular maturity, when they mature, the fund closes. 
B) trades on a stock exchange just like a publicly traded corporation. 
C) always trades at Net Asset Value. 
D) all of the above

Question 15

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock.The stock pays a £0.30 quarterly dividend,and after one year the investment sells for £54.
Spot exchange rates at the start and end of the year are shown in the table.

Accepted Answer

The key is to calcul

Question 16

The stock market of country A has an expected return of 8%, and standard deviation of expected return of 5%. The stock market of country B has an expected return of 16% and standard deviation of expected return of 10%.
-Assume that the correlation of expected return between A and B is negative 1.Calculate the standard deviation of expected return of the portfolio in the last question.

Accepted Answer

The answer of The stock market of country A has...

Question 17

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock using 50% margin.One year after investment,the stock pays a £1 dividend,and sells for £54 the exchange rate has changed from €1.25 per pound to €1.30 per pound.The interest on the margin loan is 1% per year.The margin loan was denominated in pounds.

Accepted Answer

The answer of Calculate the euro-based return an Italian investor...

Question 18

WEBS are

Accepted Answer

A) World Equity Benchmark Shares. 
B) exchange-traded open-end country funds designed to closely track foreign stock market indexes. 
C) both a) and b) 
D) none of the above 
A) World Equity Benchmark Shares. 
B) exchange-traded open-end country funds designed to closely track foreign stock market indexes. 
C) both a) and b) 
D) none of the above

Question 19

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a $50 American stock.The stock pays a $0.30 quarterly dividend,and after one year the investment sells for $54 the exchange has changed from €.625 per dollar to €.6875 per dollar.

Accepted Answer

Our invest

Question 20

Explanations for Home Bias include

Accepted Answer

A) domestic securities may provide investors with certain extra services, such as hedging against domestic inflation, that foreign securities do not. 
B) there may be barriers, formal or informal, to investing in foreign securities. 
C) investors may face country-specific inflation in violation of PPP. 
D) all of the above 
A) domestic securities may provide investors with certain extra services, such as hedging against domestic inflation, that foreign securities do not. 
B) there may be barriers, formal or informal, to investing in foreign securities. 
C) investors may face country-specific inflation in violation of PPP. 
D) all of the above

With regard to the past price performance of closed end mutual funds

Foreign equities as a proportion of U.S.investors' portfolio wealth rose from about 1 percent in the early 1980s to about ____________ by 2007.

If the investor hedges the exchange rate risk when investing internationally

The degree of home bias varies across investors

The return and variance of return to a U.S.dollar investor from investing in individual foreign security i are given by:

A closed end mutual fund

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock.The stock pays a £0.30 quarterly dividend,and after one year the investment sells for £54. Spot exchange rates at the start and end of the year are shown in the table.

WEBS are

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a $50 American stock.The stock pays a $0.30 quarterly dividend,and after one year the investment sells for $54 the exchange has changed from €.625 per dollar to €.6875 per dollar.

Explanations for Home Bias include

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

Exam 15: International Portfolio Investment

With regard to the past price performance of closed end mutual funds

Foreign equities as a proportion of U.S.investors' portfolio wealth rose from about 1 percent in the early 1980s to about ____________ by 2007.

If the investor hedges the exchange rate risk when investing internationally

The degree of home bias varies across investors

The return and variance of return to a U.S.dollar investor from investing in individual foreign security i are given by:

A closed end mutual fund

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock.The stock pays a £0.30 quarterly dividend,and after one year the investment sells for £54. Spot exchange rates at the start and end of the year are shown in the table.

WEBS are

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a $50 American stock.The stock pays a $0.30 quarterly dividend,and after one year the investment sells for $54 the exchange has changed from €.625 per dollar to €.6875 per dollar.

Explanations for Home Bias include

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters