Question 1

A well-diversified portfolio has about ________ of the risk of the typical individual stock.

Accepted Answer

A) 8% 
B) 19% 
C) 27% 
D) 52% 
A) 8% 
B) 19% 
C) 27% 
D) 52% C

Question 2

The Sharpe and Treynor Measures tend to be consistent in their ranking of portfolios when the portfolios:

Accepted Answer

A) are poorly diversified. 
B) are properly diversified. 
C) contain only U.S. equity investments. 
D) none of the above 
A) are poorly diversified. 
B) are properly diversified. 
C) contain only U.S. equity investments. 
D) none of the above B

Question 3

Of the major trading partners with the United States, Canada has among the LOWEST correlation of returns with the U.S.

Accepted Answer

A) True 
 B)False  False

Question 4

The standard deviation of a portfolio is the sum of the weighted average standard deviations of the individual assets.

Accepted Answer

A) True 
 B)False

Question 5

TABLE 16.1
Use the information to answer following question(s).  
-Refer to Table 16.1. ________ appears to have the greatest amount of risk as measured by monthly standard deviation, but ________ has the best return per unit of risk according to the Sharpe Measure.

Accepted Answer

A) United States; Austria 
B) France; Austria 
C) United States; Netherlands 
D) France; Netherlands 
A) United States; Austria 
B) France; Austria 
C) United States; Netherlands 
D) France; Netherlands

Question 6

In an empirical study on national market returns in the 20th century, Dimson, Marsh, and Staunton (2002)determined that due to high levels of correlation or returns between countries, there is almost NO BENEFIT to international portfolio diversification.

Accepted Answer

A) True 
 B)False

Question 7

Relative to the efficient frontier of risky portfolios, it is impossible to hold a portfolio that is located ________ the efficient frontier.

Accepted Answer

A) to the left of 
B) to the right of 
C) on 
D) to the right or left of 
A) to the left of 
B) to the right of 
C) on 
D) to the right or left of

Question 8

If an investor is able to determine a global beta for his portfolio and holds a portfolio that is well-diversified with international investments, which performance measure is more appropriate, the Sharpe Measure or the Treynor Measure? Why? Explain each performance measure.

Accepted Answer

The Sharpe Measure is the ratio of exces

Question 9

If the addition of a foreign security to the portfolio of the investor aids in the reduction of risk for a given level of return, then the security adds value to the portfolio.

Accepted Answer

A) True 
 B)False

Question 10

Instruction 16.2:Use the information to answer the following question(s).
A U.S. investor is considering a portfolio consisting of 60% invested in the U.S. equity index fund and 40% invested in the British equity index fund. The expected returns for the funds are 10% for the U.S. and 8% for the British, standard deviations of 20% for the U.S. and 18% for the British, and a correlation coefficient of 0.15 between the U.S. and British equity funds.
-Refer to Instruction 16.2. What is the expected return of the proposed portfolio?

Accepted Answer

A) 9.2% 
B) 9.0% 
C) 19.2% 
D) 19% 
A) 9.2% 
B) 9.0% 
C) 19.2% 
D) 19%

Question 11

The denominator of the Sharpe measure is portfolio risk as measured by the standard deviation of the portfolio.

Accepted Answer

A) True 
 B)False

Question 12

A U.S. investor makes an investment in Britain and earns 14% on the investment while the British pound appreciates against the U.S. dollar by 8%. What is the investor's total return?

Accepted Answer

A) 22.00% 
B) 23.12% 
C) 6.00% 
D) 4.88% 
A) 22.00% 
B) 23.12% 
C) 6.00% 
D) 4.88%

Question 13

Which of the following statements is NOT true?

Accepted Answer

A) International diversification benefits induce investors to demand foreign securities. 
B) An international security adds value to a portfolio if it reduces risk without reducing return. 
C) Investors will demand a security that adds value. 
D) All of the above are true. 
A) International diversification benefits induce investors to demand foreign securities. 
B) An international security adds value to a portfolio if it reduces risk without reducing return. 
C) Investors will demand a security that adds value. 
D) All of the above are true.

Question 14

An internationally diversified portfolio:

Accepted Answer

A) should result in a portfolio with a lower beta than a purely domestic portfolio. 
B) has the same overall risk shape as a purely domestic portfolio. 
C) is only about 12% as risky as the typical individual stock. 
D) all of the above 
A) should result in a portfolio with a lower beta than a purely domestic portfolio. 
B) has the same overall risk shape as a purely domestic portfolio. 
C) is only about 12% as risky as the typical individual stock. 
D) all of the above

Question 15

If the addition of a foreign security to the portfolio of the investor decreases the expected return for a given level of risk, then the security adds value to the portfolio.

Accepted Answer

A) True 
 B)False

Question 16

A fully diversified domestic portfolio has a beta of:

Accepted Answer

A) 0.0 
B) 1.0 
C) -1.0 
D) There is not enough information to answer this question. 
A) 0.0 
B) 1.0 
C) -1.0 
D) There is not enough information to answer this question.

Question 17

Portfolio theory assumes that investors are risk-averse. This means that investors:

Accepted Answer

A) cannot be induced to make risky investments. 
B) prefer more risk to less for a given return. 
C) will accept some risk, but not unnecessary risk. 
D) All of the above are true. 
A) cannot be induced to make risky investments. 
B) prefer more risk to less for a given return. 
C) will accept some risk, but not unnecessary risk. 
D) All of the above are true.

Question 18

The ________ connects the risk-free security with the optimal domestic portfolio.

Accepted Answer

A) security market line 
B) capital asset pricing model 
C) capital market line 
D) none of the above 
A) security market line 
B) capital asset pricing model 
C) capital market line 
D) none of the above

Question 19

The portfolio with the least risk among all those possible in the domestic portfolio opportunity set is called the minimum risk domestic portfolio.

Accepted Answer

A) True 
 B)False

Question 20

The efficient frontier of the domestic portfolio opportunity set:

Accepted Answer

A) runs along the extreme left edge of the opportunity set. 
B) represents optimal portfolios of securities that represent minimum risk for a given level of expected portfolio return. 
C) contains the portfolio of risky securities that the logical investor would choose to hold. 
D) all of the above 
A) runs along the extreme left edge of the opportunity set. 
B) represents optimal portfolios of securities that represent minimum risk for a given level of expected portfolio return. 
C) contains the portfolio of risky securities that the logical investor would choose to hold. 
D) all of the above

A well-diversified portfolio has about ________ of the risk of the typical individual stock.

The Sharpe and Treynor Measures tend to be consistent in their ranking of portfolios when the portfolios:

Of the major trading partners with the United States, Canada has among the LOWEST correlation of returns with the U.S.

The standard deviation of a portfolio is the sum of the weighted average standard deviations of the individual assets.

TABLE 16.1 Use the information to answer following question(s). -Refer to Table 16.1. appears to have the greatest amount of risk as measured by monthly standard deviation, but has the best return per unit of risk according to the Sharpe Measure.

In an empirical study on national market returns in the 20th century, Dimson, Marsh, and Staunton (2002)determined that due to high levels of correlation or returns between countries, there is almost NO BENEFIT to international portfolio diversification.

Relative to the efficient frontier of risky portfolios, it is impossible to hold a portfolio that is located ________ the efficient frontier.

If an investor is able to determine a global beta for his portfolio and holds a portfolio that is well-diversified with international investments, which performance measure is more appropriate, the Sharpe Measure or the Treynor Measure? Why? Explain each performance measure.

If the addition of a foreign security to the portfolio of the investor aids in the reduction of risk for a given level of return, then the security adds value to the portfolio.

The denominator of the Sharpe measure is portfolio risk as measured by the standard deviation of the portfolio.

A U.S. investor makes an investment in Britain and earns 14% on the investment while the British pound appreciates against the U.S. dollar by 8%. What is the investor's total return?

Which of the following statements is NOT true?

An internationally diversified portfolio:

If the addition of a foreign security to the portfolio of the investor decreases the expected return for a given level of risk, then the security adds value to the portfolio.

A fully diversified domestic portfolio has a beta of:

Portfolio theory assumes that investors are risk-averse. This means that investors:

The ________ connects the risk-free security with the optimal domestic portfolio.

The portfolio with the least risk among all those possible in the domestic portfolio opportunity set is called the minimum risk domestic portfolio.

The efficient frontier of the domestic portfolio opportunity set:

Current Multinational Challenges and the Global Economy

Corporate Ownership, Goals, and Governance

The International Monetary System

The Balance of Payments

The Continuing Global Financial Crisis

The Foreign Exchange Theory and Markets

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Working Capital Management

International Trade Finance

Filters

Exam 16: International Portfolio Theory and Diversification

A well-diversified portfolio has about ________ of the risk of the typical individual stock.

The Sharpe and Treynor Measures tend to be consistent in their ranking of portfolios when the portfolios:

Of the major trading partners with the United States, Canada has among the LOWEST correlation of returns with the U.S.

The standard deviation of a portfolio is the sum of the weighted average standard deviations of the individual assets.

TABLE 16.1 Use the information to answer following question(s). -Refer to Table 16.1. ________ appears to have the greatest amount of risk as measured by monthly standard deviation, but ________ has the best return per unit of risk according to the Sharpe Measure.

In an empirical study on national market returns in the 20th century, Dimson, Marsh, and Staunton (2002)determined that due to high levels of correlation or returns between countries, there is almost NO BENEFIT to international portfolio diversification.

Relative to the efficient frontier of risky portfolios, it is impossible to hold a portfolio that is located ________ the efficient frontier.

If an investor is able to determine a global beta for his portfolio and holds a portfolio that is well-diversified with international investments, which performance measure is more appropriate, the Sharpe Measure or the Treynor Measure? Why? Explain each performance measure.

If the addition of a foreign security to the portfolio of the investor aids in the reduction of risk for a given level of return, then the security adds value to the portfolio.

The denominator of the Sharpe measure is portfolio risk as measured by the standard deviation of the portfolio.

A U.S. investor makes an investment in Britain and earns 14% on the investment while the British pound appreciates against the U.S. dollar by 8%. What is the investor's total return?

Which of the following statements is NOT true?

An internationally diversified portfolio:

If the addition of a foreign security to the portfolio of the investor decreases the expected return for a given level of risk, then the security adds value to the portfolio.

A fully diversified domestic portfolio has a beta of:

Portfolio theory assumes that investors are risk-averse. This means that investors:

The ________ connects the risk-free security with the optimal domestic portfolio.

The portfolio with the least risk among all those possible in the domestic portfolio opportunity set is called the minimum risk domestic portfolio.

The efficient frontier of the domestic portfolio opportunity set:

Current Multinational Challenges and the Global Economy

Corporate Ownership, Goals, and Governance

The International Monetary System

The Balance of Payments

The Continuing Global Financial Crisis

The Foreign Exchange Theory and Markets

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Working Capital Management

International Trade Finance

Filters

TABLE 16.1 Use the information to answer following question(s). -Refer to Table 16.1. appears to have the greatest amount of risk as measured by monthly standard deviation, but has the best return per unit of risk according to the Sharpe Measure.