Question 1

Suppose that U.S.equity markets represent about 35% of total global equity markets and that the typical U.S.investor has about 95% of their portfolio invested only in U.S.equities.This is an example of _________.

Accepted Answer

A)  home country bias 
B)  excessive diversification 
C)  active management 
D)  passive management

Question 2

Which one of the following country risks refers to the possibility of expropriation of assets,changes in tax policy and the possibility of restrictions on foreign exchange transactions?

Accepted Answer

A)  Default risk 
B)  Foreign exchange risk 
C)  Market risk 
D)  Political risk

Question 3

All exchange rates are expressed as units of foreign currency that can be purchased with one U.S. dollar. Answer the following questions about decomposing the manager's performance.
-What is the difference in return of the manager's portfolio due to country selection?

Accepted Answer

A)  -0.60% 
B)  -0.75% 
C)  0.12% 
D)  0.22%

Question 4

Annual inflation rate is a(n)_______ risk variable.

Accepted Answer

A)  firm specific 
B)  political 
C)  financial 
D)  economic

Question 5

The major participants who directly purchase securities in the capital markets of other countries are predominantly ____________.

Accepted Answer

A)  large institutional investors 
B)  individual investors 
C)  government agencies 
D)  central banks

Question 6

One year U.S.interest rates are 7% and European interest rates are 5%.The spot euro direct exchange rate quote is 1.30 and the one year forward rate direct quote is 1.25.If you have $1 million dollars or € 1 million to start with what would be your dollar profits from an interest arbitrage based on this data?

Accepted Answer

A)  $60,384 
B)  $42,973 
C)  $68,422 
D)  $78,500

Question 7

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤.
-After one year,the exchange rate is unchanged and the share price is ₤55.What is the pound-denominated return?

Accepted Answer

A)  14% 
B)  10% 
C)  9.3% 
D)  7.1%

Question 8

The correlation coefficient between the U.S.stock market index and stock market indices of major countries is __________.

Accepted Answer

A)  between -1 and -0.50 
B)  between -0.50 and 0.00 
C)  between 0.00 and 0.50 
D)  between 0.50 and 1

Question 9

Of the following,which is the most commonly used international index?

Accepted Answer

A)  DJIA 
B)  EAFE 
C)  Russell 2000 
D)  S&P500

Question 10

You find that the exchange rate quote for the yen is 121 yen per dollar.This is an example of a/an ________ quote.You also find that the euro is worth $1.33.This second quote is an example of a/an _______ quote.

Accepted Answer

A)  direct; indirect 
B)  indirect; direct 
C)  foreign; U.S. 
D)  U.S.; foreign

Exam 19: Globalization and International Investing

Suppose that U.S.equity markets represent about 35% of total global equity markets and that the typical U.S.investor has about 95% of their portfolio invested only in U.S.equities.This is an example of _________.

Which one of the following country risks refers to the possibility of expropriation of assets,changes in tax policy and the possibility of restrictions on foreign exchange transactions?

All exchange rates are expressed as units of foreign currency that can be purchased with one U.S. dollar. Answer the following questions about decomposing the manager's performance. -What is the difference in return of the manager's portfolio due to country selection?

Annual inflation rate is a(n) _______ risk variable.

The major participants who directly purchase securities in the capital markets of other countries are predominantly ____________.

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤. -After one year,the exchange rate is unchanged and the share price is ₤55.What is the pound-denominated return?

The correlation coefficient between the U.S.stock market index and stock market indices of major countries is __________.

Of the following,which is the most commonly used international index?

You find that the exchange rate quote for the yen is 121 yen per dollar.This is an example of a/an __ quote.You also find that the euro is worth $1.33.This second quote is an example of a/an _ quote.