Question 1

The developed country with the highest average U.S.dollar equity-market excess return between 2000 and 2009 is

Accepted Answer

A) Japan 
B) Norway 
C) Austria 
D) U.S. 
E) none of the above 
A) Japan 
B) Norway 
C) Austria 
D) U.S. 
E) none of the above

Question 2

Marla holds her portfolio 100% in U.S.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 Marla 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

Question 3

The developed country with the highest average local-currency equity-market excess return between 2000 and 2009 is

Accepted Answer

A) Japan 
B) Korea 
C) U.K. 
D) U.S. 
E) none of the above 
A) Japan 
B) Korea 
C) U.K. 
D) U.S. 
E) none of the above

Question 4

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 5

The interest rate on a 1-year Canadian security is 8%.The current exchange rate is C$ = US $0.78.The 1-year forward rate is C$ = US $0.76.The return (denominated in U.S.$)that a U.S.investor can earn by investing in the Canadian security is __________.

Accepted Answer

A) 3.59% 
B) 4.00% 
C) 5.23% 
D) 8.46% 
E) none of the above 
A) 3.59% 
B) 4.00% 
C) 5.23% 
D) 8.46% 
E) none of the above

Question 6

Discuss performance evaluation of international portfolio managers in terms of potential sources of abnormal returns.

Accepted Answer

The following factors may be measured to

Question 7

Home bias refers to

Accepted Answer

A) the tendency to vacation in your home country instead of traveling abroad. 
B) the tendency to believe that your home country is better than other countries. 
C) the tendency to give preferential treatment to people from your home country. 
D) the tendency to overweight investments in your home country. 
E) none of the above. 
A) the tendency to vacation in your home country instead of traveling abroad. 
B) the tendency to believe that your home country is better than other countries. 
C) the tendency to give preferential treatment to people from your home country. 
D) the tendency to overweight investments in your home country. 
E) none of the above.

Question 8

"ADRs" stands for ___________ and "WEBS" stands for ____________.

Accepted Answer

A) Additional Dollar Returns; Weekly Equity and Bond Survey 
B) Additional Daily Returns; World Equity and Bond Survey 
C) American Dollar Returns; World Equity and Bond Statistics 
D) American Depository Receipts; World Equity Benchmark Shares 
E) Adjusted Dollar Returns; Weighted Equity Benchmark Shares 
A) Additional Dollar Returns; Weekly Equity and Bond Survey 
B) Additional Daily Returns; World Equity and Bond Survey 
C) American Dollar Returns; World Equity and Bond Statistics 
D) American Depository Receipts; World Equity Benchmark Shares 
E) Adjusted Dollar Returns; Weighted Equity Benchmark Shares

Question 9

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% 
E) none of the above 
A) 12.53% 
B) 15.21% 
C) 17.50% 
D) 18.75% 
E) none of the above

Question 10

-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 11

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 the above 
E) none of the above. 
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 the above 
E) none of the above.

Question 12

You are a U.S.investor who purchased British securities for 2,000 pounds one year ago when the British pound cost $1.50.No dividends were paid on the British securities in the past year.Your total return based on U.S.dollars was __________ if the value of the securities is now 2,400 pounds and the pound is worth $1.60.

Accepted Answer

A) 16.7% 
B) 20.0% 
C) 28.0% 
D) 40.0% 
E) none of the above 
A) 16.7% 
B) 20.0% 
C) 28.0% 
D) 40.0% 
E) none of the above

Question 13

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 above - 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 above - each of these countries' indexes fall inside the efficient frontier.

Question 14

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) A and C. 
E) A and B. 
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) A and C. 
E) A and B.

Question 15

The __________ equity market had the lowest average U.S.dollar excess return between 2000 and 2009.

Accepted Answer

A) Russian 
B) Finnish 
C) Columbian 
D) Irish 
E) none of the above 
A) Russian 
B) Finnish 
C) Columbian 
D) Irish 
E) none of the above

Question 16

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 above 
E) none of the above 
A) country selection 
B) currency selection 
C) stock selection 
D) all of the above 
E) none of the above

Question 17

Shares of several foreign firms are traded in the U.S.markets in the form of

Accepted Answer

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

Question 18

The yield on a 1-year bill in the U.K.is 8% and the present exchange rate is 1 pound = U.S.$1.60.If you expect the exchange rate to be 1 pound = U.S.$1.50 a year from now,the return a U.S.investor can expect to earn by investing in U.K.bills is

Accepted Answer

A) -6.7% 
B) 0% 
C) 8% 
D) 1.25% 
E) none of the above 
A) -6.7% 
B) 0% 
C) 8% 
D) 1.25% 
E) none of the above

Question 19

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 the above. 
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 the above.

Question 20

The emerging market country with the lowest average U.S.dollar equity-market excess return between 2000 and 2009 is

Accepted Answer

A) China 
B) Russia 
C) Poland 
D) Taiwan 
E) none of the above 
A) China 
B) Russia 
C) Poland 
D) Taiwan 
E) none of the above

Exam 25: International Diversification

The developed country with the highest average U.S.dollar equity-market excess return between 2000 and 2009 is

The developed country with the highest average local-currency equity-market excess return between 2000 and 2009 is

The average country equity market share is

The interest rate on a 1-year Canadian security is 8%.The current exchange rate is C$ = US $0.78.The 1-year forward rate is C$ = US $0.76.The return (denominated in U.S.$)that a U.S.investor can earn by investing in the Canadian security is __________.

Discuss performance evaluation of international portfolio managers in terms of potential sources of abnormal returns.

Home bias refers to

"ADRs" stands for ___________ and "WEBS" stands for ____________.

-Calculate Quantitative's currency selection return contribution.

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

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

Exchange rate risk

The __________ equity market had the lowest average U.S.dollar excess return between 2000 and 2009.

The performance of an internationally diversified portfolio may be affected by

Shares of several foreign firms are traded in the U.S.markets in the form of

The yield on a 1-year bill in the U.K.is 8% and the present exchange rate is 1 pound = U.S.$1.60.If you expect the exchange rate to be 1 pound = U.S.$1.50 a year from now,the return a U.S.investor can expect to earn by investing in U.K.bills is

Investors looking for effective international diversification should

The emerging market country with the lowest average U.S.dollar equity-market excess return between 2000 and 2009 is

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and 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

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

Filters

"ADRs" stands for _ and "WEBS" stands for __.