Question 1

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)  invest about 60% of their money in foreign stocks and invest the same percentage of their money in foreign stocks that foreign equities represent in the world equity market. 
E)  None of the options. 
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)  invest about 60% of their money in foreign stocks and invest the same percentage of their money in foreign stocks that foreign equities represent in the world equity market. 
E)  None of the options.

Question 2

Using the S&P 500 portfolio as a proxy of the market portfolio

Accepted Answer

A)  is appropriate because U.S. securities represent more than 60% of world equities. 
B)  is appropriate because most U.S. investors are primarily interested in U.S. securities. 
C)  is appropriate because most U.S. and non-U.S. investors are primarily interested in U.S. securities. 
D)  is inappropriate because U.S. securities make up less than 41% of world equities. 
E)  is inappropriate because the average U.S. investor has less than 20% of his or her portfolio in non-U.S. equities. 
A)  is appropriate because U.S. securities represent more than 60% of world equities. 
B)  is appropriate because most U.S. investors are primarily interested in U.S. securities. 
C)  is appropriate because most U.S. and non-U.S. investors are primarily interested in U.S. securities. 
D)  is inappropriate because U.S. securities make up less than 41% of world equities. 
E)  is inappropriate because the average U.S. investor has less than 20% of his or her portfolio in non-U.S. equities.

Question 3

According to PRS, in 2015, which country had the highest composite risk rating on a scale of 0 (most risky) to 100 (least risky)?

Accepted Answer

A)  Switzerland 
B)  Canada 
C)  Germany 
D)  U.S. 
A)  Switzerland 
B)  Canada 
C)  Germany 
D)  U.S.

Question 4

The EAFE is

Accepted Answer

A)  the East Asia Foreign Equity index. 
B)  the Economic Advisor's Foreign Estimator index. 
C)  the European and Asian Foreign Equity index. 
D)  the European, Asian, French Equity index. 
E)  the European, Australian, Far East index. 
A)  the East Asia Foreign Equity index. 
B)  the Economic Advisor's Foreign Estimator index. 
C)  the European and Asian Foreign Equity index. 
D)  the European, Asian, French Equity index. 
E)  the European, Australian, Far East index.

Question 5

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 options are correct. 
E)  None of the options are correct. 
A)  ADRs. 
B)  ECUs. 
C)  single-country funds. 
D)  All of the options are correct. 
E)  None of the options are correct.

Question 6

Over the period 2011-2016, most correlations between the U.S. stock index and stock-index portfolios of other countries were

Accepted Answer

A)  negative. 
B)  positive but less than .9. 
C)  approximately zero. 
D)  .9 or above. 
E)  None of the options are correct. 
A)  negative. 
B)  positive but less than .9. 
C)  approximately zero. 
D)  .9 or above. 
E)  None of the options are correct.

Question 7

When Country A's currency strengthens against Country B's, citizens of Country A will

Accepted Answer

A)  pay less to buy Country B's products. 
B)  pay more to buy Country B's products. 
C)  pay more to buy domestically-produced products. 
D)  not be affected by the change in their currency's value. 
A)  pay less to buy Country B's products. 
B)  pay more to buy Country B's products. 
C)  pay more to buy domestically-produced products. 
D)  not be affected by the change in their currency's value.

Question 8

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 are correct. 
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 are correct.

Question 9

The yield on a 1-year bill in the Euro is 6%, and the present exchange rate is 1 Euro = U.S. $1.19. If you expect the exchange rate to be 1 Euro = U.S. $1.14 a year from now, the return a U.S. investor can expect to earn by investing in Euro bills is

Accepted Answer

A)  1.55%. 
B)  0%. 
C)  8%. 
D)  −0.42%. 
E)  None of the options are correct. 
A)  1.55%. 
B)  0%. 
C)  8%. 
D)  −0.42%. 
E)  None of the options are correct.

Question 10

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 are correct. 
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 are correct.

Question 11

Using local currency returns, the S&P 500 has the lowest correlation with:

Accepted Answer

A)  Euronext 
B)  FTSE 
C)  Nikkei 
D)  Toronto 
E)  Shanghai 
A)  Euronext 
B)  FTSE 
C)  Nikkei 
D)  Toronto 
E)  Shanghai

Question 12

Which country has the largest stock market compared to GDP?

Accepted Answer

A)  Japan 
B)  Germany 
C)  Hong Kong 
D)  U.S. 
A)  Japan 
B)  Germany 
C)  Hong Kong 
D)  U.S.

Question 13

________ are mutual funds that invest in one country only.

Accepted Answer

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

Question 14

Assume there is a fixed exchange rate between the Euro and U.S. dollar. The expected return and standard deviation of return on the U.S. stock market are 16% and 13%, respectively. The expected return and standard deviation on the DAX stock market are 11% and 18%, respectively. The covariance of returns between the U.S. and German stock market is 1.5%.
If you invested 50% of your money in the German (DAX) stock market and 50% in the U.S. stock market, the expected return on your portfolio would be

Accepted Answer

A)  12.0%. 
B)  12.5%. 
C)  13.0%. 
D)  13.5%. 
A)  12.0%. 
B)  12.5%. 
C)  13.0%. 
D)  13.5%.

Question 15

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 options are correct. 
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 options are correct.

Question 16

The yield on a 1-year bill in the U.K. is 6%, and the present exchange rate is 1 pound = U.S. $1.65. If you expect the exchange rate to be 1 pound = U.S. $1.55 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)  −0.42%. 
E)  None of the options are correct. 
A)  −6.7%. 
B)  0%. 
C)  8%. 
D)  −0.42%. 
E)  None of the options are correct.

Question 17

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

Question 18

In 2015, the U.S. equity market represented ________ of the world equity market.

Accepted Answer

A)  19% 
B)  60% 
C)  43% 
D)  41% 
E)  79% 
A)  19% 
B)  60% 
C)  43% 
D)  41% 
E)  79%

Question 19

Assume there is a fixed exchange rate between the Swiss Franc and U.S. dollar. The expected return and standard deviation of return on the U.S. stock market are 14% and 11%, respectively. The expected return and standard deviation on the Swiss Stock Exchange (SIX) are 9% and 14%, respectively. The covariance of returns between the U.S. and the SIX is 1.75%.
If you invested 350% of your money in the Swiss (SIX) stock market and 65% in the U.S. stock market, the expected return on your portfolio would be

Accepted Answer

A)  12.25%. 
B)  12.5%. 
C)  13.0%. 
D)  13.5%. 
A)  12.25%. 
B)  12.5%. 
C)  13.0%. 
D)  13.5%.

Question 20

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%.

Investors looking for effective international diversification should

Using the S&P 500 portfolio as a proxy of the market portfolio

According to PRS, in 2015, which country had the highest composite risk rating on a scale of 0 (most risky) to 100 (least risky)?

The EAFE is

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

Over the period 2011-2016, most correlations between the U.S. stock index and stock-index portfolios of other countries were

When Country A's currency strengthens against Country B's, citizens of Country A will

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

The yield on a 1-year bill in the Euro is 6%, and the present exchange rate is 1 Euro = U.S. $1.19. If you expect the exchange rate to be 1 Euro = U.S. $1.14 a year from now, the return a U.S. investor can expect to earn by investing in Euro bills is

WEBS portfolios

Using local currency returns, the S&P 500 has the lowest correlation with:

Which country has the largest stock market compared to GDP?

________ are mutual funds that invest in one country only.

Home bias refers to

The yield on a 1-year bill in the U.K. is 6%, and the present exchange rate is 1 pound = U.S. $1.65. If you expect the exchange rate to be 1 pound = U.S. $1.55 a year from now, the return a U.S. investor can expect to earn by investing in U.K. bills 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?

In 2015, the U.S. equity market represented ________ of the world equity market.

The average country equity market share is

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Evaluating Investment Performance

Hedge Funds

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

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Exam 19: International Diversification

Investors looking for effective international diversification should

Using the S&P 500 portfolio as a proxy of the market portfolio

According to PRS, in 2015, which country had the highest composite risk rating on a scale of 0 (most risky) to 100 (least risky)?

The EAFE is

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

Over the period 2011-2016, most correlations between the U.S. stock index and stock-index portfolios of other countries were

When Country A's currency strengthens against Country B's, citizens of Country A will

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

The yield on a 1-year bill in the Euro is 6%, and the present exchange rate is 1 Euro = U.S. $1.19. If you expect the exchange rate to be 1 Euro = U.S. $1.14 a year from now, the return a U.S. investor can expect to earn by investing in Euro bills is

WEBS portfolios

Using local currency returns, the S&P 500 has the lowest correlation with:

Which country has the largest stock market compared to GDP?

________ are mutual funds that invest in one country only.

Home bias refers to

The yield on a 1-year bill in the U.K. is 6%, and the present exchange rate is 1 pound = U.S. $1.65. If you expect the exchange rate to be 1 pound = U.S. $1.55 a year from now, the return a U.S. investor can expect to earn by investing in U.K. bills 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?

In 2015, the U.S. equity market represented ________ of the world equity market.

The average country equity market share is

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Evaluating Investment Performance

Hedge Funds

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Filters