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Exam 25: International Diversification

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Question 21

Multiple Choice

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Which equity index had the highest volatility in terms of U.S.dollar-denominated returns for the period of five years ending in October 2016?

A) Shanghai
B) India
C) Nikkei
D) U.S.

E) B) and D)
F) None of the above

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Question 22

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Home bias refers to

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) A) and C)
F) A) and D)

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Question 23

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Suppose the 1-year risk-free rate of return in Canada.is 4.5% and the 1-year risk-free rate of return in Britain is 7.7%.The current exchange rate is 1 pound = Cad.$1.60.A 1-year future exchange rate of __________ for the pound would make a Canadian investor indifferent between investing in the Canadian security and investing in the British security.

WEBS portfolios

The EAFE is

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 expected return on your portfolio would be

__________ refers to the possibility of expropriation of assets, changes in tax policy, and the possibility of restrictions on foreign exchange transactions.

Which equity index had the lowest volatility in terms of U.S.dollar-denominated returns for the period of five years ending in October 2016?

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

The interest rate on a 1-year Canadian security is 7.8%.The current exchange rate is C$ = US $0.79.The 1-year forward rate is C$ = US $0.77.The return (denominated in U.S.$) that a U.S.investor can earn by investing in the Canadian security is

The manager of Quantitative International Fund uses EAFE as a benchmark.Last year's performance for the fund and the benchmark were as follows: Calculate Quantitative's stock selection return contribution.

Exchange-rate risk

Which country has the highest in GDP per capita?

The manager of Quantitative International Fund uses EAFE as a benchmark.Last year's performance for the fund and the benchmark were as follows: Calculate Quantitative's country selection return contribution.

The present exchange rate is C$ = U.S.$0.78.The 1-year future rate is C$ = U.S.$0.76.The yield on a 1-year U.S.bill is 4%.A yield of __________ on a 1-year Canadian bill will make an investor indifferent between investing in the U.S.bill and the Canadian bill.

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

Suppose the 1-year risk-free rate of return in Canada is 4% and the 1-year risk-free rate of return in Britain is 6%.The current exchange rate is 1 pound = Cad.$1.67.A 1-year future exchange rate of __________ for the pound would make a Canadian investor indifferent between investing in the Canadian security and investing in the British security.

The interplay between interest rate differentials and exchange rates, such that each adjusts until the foreign exchange market and the money market reach equilibrium, is called the

Which country has the largest stock market compared to GDP?