Question 1

Hedge funds

Accepted Answer

A) do not register as an investment company and are not subject to reporting or disclosure requirements. 
B) have experienced phenomenal growth in recent years. 
C) tend to have relatively low correlations with various stock market benchmarks. 
D) all of the above 
A) do not register as an investment company and are not subject to reporting or disclosure requirements. 
B) have experienced phenomenal growth in recent years. 
C) tend to have relatively low correlations with various stock market benchmarks. 
D) all of the above

Question 2

A zero-coupon British bond promises to pay £100,000 in five years.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.The appropriate discount rate for a bond of this risk would be 10% if it paid in dollars.What is the appropriate price of the bond?

Accepted Answer

A) £62,092.13 = $124,184.26 
B) £65,196.13 = $130,392.26 
C) none of the above 
A) £62,092.13 = $124,184.26 
B) £65,196.13 = $130,392.26 
C) none of the above

Question 3

A zero-coupon French bond promises to pay €100,000 in five years.The current exchange rate is $1.50 = €1.00 and inflation is forecast at 3% in the U.S.and 2% in the euro zone per year for the next five years.The appropriate discount rate for a bond of this risk would be 10% if it paid in dollars.What is the appropriate price of the bond?

Accepted Answer

A) £65,196.13 = $97,794.20 
B) £62,092.13 = $93,138.20 
C) none of the above 
A) £65,196.13 = $97,794.20 
B) £62,092.13 = $93,138.20 
C) none of the above

Question 4

The "world beta" measures the

Accepted Answer

A) unsystematic risk. 
B) sensitivity of returns on a security to world market movements. 
C) risk-adjusted performance. 
D) risk of default and bankruptcy. 
A) unsystematic risk. 
B) sensitivity of returns on a security to world market movements. 
C) risk-adjusted performance. 
D) risk of default and bankruptcy.

Question 5

Assume that you have invested $100,000 in British equities.When purchased,the stock's price and the exchange rate were £50 and £0.50/$1.00 respectively.At selling time,one year after purchase,they were £60 and £0.60/$1.00.If the investor had sold £50,000 forward at the forward exchange rate of £0.55/$1.00,the dollar rate of return would be:

Accepted Answer

A) 10.90% 
B) 7.58% 
C) 28.00% 
D) 9.09% 
A) 10.90% 
B) 7.58% 
C) 28.00% 
D) 9.09%

Question 6

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock.One year after investment,the stock has no value since the firm is bankrupt.Meanwhile the exchange rate has changed from €1.25 per pound to €1.30 per pound,and he sold £8,000 forward at the forward rate of €1.28 per pound.

Accepted Answer

\[\begin{aligned}
H P R & = \frac { \fra

Question 7

Compared with bond markets

Accepted Answer

A) the risk of investing in foreign stock markets is, to a lesser degree, attributable to exchange rate uncertainty. 
B) the risk of investing in foreign stock markets is, to a much greater degree, attributable to exchange rate uncertainty. 
C) exchange risk is lower than default risk and interest rate risk. 
D) all of the above 
A) the risk of investing in foreign stock markets is, to a lesser degree, attributable to exchange rate uncertainty. 
B) the risk of investing in foreign stock markets is, to a much greater degree, attributable to exchange rate uncertainty. 
C) exchange risk is lower than default risk and interest rate risk. 
D) all of the above

Question 8

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

Question 9

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 10

With regard to the OIP,

Accepted Answer

A) the composition of the optimal international portfolio is identical for all investors, regardless of home country. 
B) the OIP has more return and less risk for all investors, regardless of home country. 
C) the composition of the optimal international portfolio is identical for all investors of a particular country, whether or not they hedge their risk with currency futures contracts. 
D) none of the above 
A) the composition of the optimal international portfolio is identical for all investors, regardless of home country. 
B) the OIP has more return and less risk for all investors, regardless of home country. 
C) the composition of the optimal international portfolio is identical for all investors of a particular country, whether or not they hedge their risk with currency futures contracts. 
D) none of the above

Question 11

Advantages of investing in U.S.-based international mutual funds include

Accepted Answer

A) lower transactions costs relative to direct investing. 
B) circumvention of many legal and institution barriers to direct portfolio investment in many foreign markets. 
C) professional management, potentially expertise in security selection, definitely record-keeping. 
D) all of the above 
A) lower transactions costs relative to direct investing. 
B) circumvention of many legal and institution barriers to direct portfolio investment in many foreign markets. 
C) professional management, potentially expertise in security selection, definitely record-keeping. 
D) all of the above

Question 12

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock.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,although he sold £8,800 forward at the forward rate of €1.28 per pound.
Spot exchange rates at the start and end of the year are shown in the table. $$\begin{array} { | l | l | l | l | } 
\hline & \text { Spot Rate } \mathrm { T } = 0 & \text { Spot Rate } \mathrm { T } = 1 & \text { Forward rate } \
\hline \text { Euro } & \$ 1.60 & \$ 1.60 & \$ 1.625 \
\hline \text { pound } & \$ 2.00 & \$ 2.08 & \$ 2.08 \
\hline
\end{array}$$

Accepted Answer

The key is to calculate the cross exchan

Question 13

The record of investing in U.S.-based MNCs

Accepted Answer

A) shows that the share prices of U.S.-based MNCs behave much like those of domestic firms, without providing effective international diversification. 
B) shows that the share prices of U.S.-based MNCs behave much differently than those of domestic firms, providing effective international diversification. 
C) shows that the share prices of U.S.-based MNCs behave much like the currency returns of their foreign markets. 
D) none of the above 
A) shows that the share prices of U.S.-based MNCs behave much like those of domestic firms, without providing effective international diversification. 
B) shows that the share prices of U.S.-based MNCs behave much differently than those of domestic firms, providing effective international diversification. 
C) shows that the share prices of U.S.-based MNCs behave much like the currency returns of their foreign markets. 
D) none of the above

Question 14

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%.
-Find the Global Minimum Variance Portfolio.
With a correlation coefficient of negative one we know that the efficient

Accepted Answer

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

Question 15

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 16

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 17

When a country is more remote,with an uncommon language

Accepted Answer

A) domestic investors tend to invest more in country's market and less abroad. 
B) foreign investors tend to invest less in country's market. 
C) domestic investors tend to invest more in country's market. 
D) both a and b 
A) domestic investors tend to invest more in country's market and less abroad. 
B) foreign investors tend to invest less in country's market. 
C) domestic investors tend to invest more in country's market. 
D) both a and b

Question 18

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British 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 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 is denominated in pounds.

Accepted Answer

\[\begin{aligned}
H P R & = \frac { \fra

Question 19

With regard to the past price performance of U.S.-based closed end country funds,

Accepted Answer

A) most CECFs behave more like U.S.securities than their corresponding NAVs. 
B) most CECFs have track records nearly identical to their currency returns. 
C) most CECFs have stock betas of around zero when measured against the S&P 500. 
D) none of the above 
A) most CECFs behave more like U.S.securities than their corresponding NAVs. 
B) most CECFs have track records nearly identical to their currency returns. 
C) most CECFs have stock betas of around zero when measured against the S&P 500. 
D) none of the above

Question 20

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock.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,although he sold £10,000 forward at the forward rate of €1.28 per pound.

Accepted Answer

\[\begin{aligned}
H P R & = \frac { \fra

Hedge funds

The "world beta" measures the

Compared with bond markets

Explanations for Home Bias include

With regard to the OIP,

Advantages of investing in U.S.-based international mutual funds include

The record of investing in U.S.-based MNCs

The degree of home bias varies across investors

When a country is more remote,with an uncommon language

With regard to the past price performance of U.S.-based closed end country funds,

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

Hedge funds

The "world beta" measures the

Compared with bond markets

Explanations for Home Bias include

With regard to the OIP,

Advantages of investing in U.S.-based international mutual funds include

The record of investing in U.S.-based MNCs

The degree of home bias varies across investors

When a country is more remote,with an uncommon language

With regard to the past price performance of U.S.-based closed end country funds,

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