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Exam 25: International Diversification

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Question 1

Multiple Choice

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The __________ equity market had the lowest average U.S.dollar standard deviation of excess returns between 2002-2011.

A) Turkish
B) U.S.
C) Indonesian
D) U.K.

E) A) and B)
F) B) and C)

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Question 2

Multiple Choice

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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 currency selection return contribution.

A) +20%
B) -5%
C) +15%
D) +5%
E) -10%

F) A) and B)
G) C) and E)

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Question 3

Multiple Choice

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Suppose the 1-year risk-free rate of return in the U.S.is 4% and the 1-year risk-free rate of return in Britain is 7%.The current exchange rate is 1 pound = U.S.$1.65.A 1-year future exchange rate of __________ for the pound would make a U.S.investor indifferent between investing in the U.S.security and investing in the British security.

Exchange rate risk

The developed country with the lowest average local-currency equity-market excess return between 2002-2011 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 standard deviation of return of your portfolio would be

The emerging market country with the highest average local-currency equity-market excess return between 2002-2011 is

The __________ index is a widely used index of non-U.S.stocks.

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

The developed country with the highest average U.S.dollar equity-market excess return between 2002-2011 is

The developed country with the highest average local-currency equity-market excess return between 2002-2011 is

The __________ equity market had the lowest average local currency excess return between 2002-2011.

The __________ equity market had the lowest average local currency standard deviation of excess returns between 2002-2011.

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

__________ are mutual funds that invest in one country only.

WEBS portfolios

The average country equity market share is

The performance of an internationally diversified portfolio may be affected by

Which of the following countries has an equity index that lies on the efficient frontier generated by allowing international diversification

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