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Exam 25: International Diversification

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Question 21

Multiple Choice

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The performance of an internationally-diversified portfolio may be affected by

A) country selection.
B) currency selection.
C) stock selection.
D) All of the options are correct.
E) None of the options are correct.

F) C) and D)
G) D) and E)

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Question 22

Multiple Choice

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Which country has the largest stock market compared to GDP?

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

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

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Question 23

Multiple Choice

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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

The yield on a 1-year bill in the U.K. is 8%, and the present exchange rate is 1 pound = U.S. $1.60. If you expect the exchange rate to be 1 pound = U.S. $1.50 a year from now, the return a U.S. investor can expect to earn by investing in U.K. bills is

You are a U.S. investor who purchased British securities for 2,000 pounds, one year ago when the British pound cost $1.50. No dividends were paid on the British securities in the past year. Your total return based on U.S. dollars was __________ if the value of the securities is now 2,400 pounds and the pound is worth $1.60.

The interest rate on a 1-year Canadian security is 8%. The current exchange rate is C$ = US $0.78. The 1-year forward rate is C$ = US $0.76. The return (denominated in U.S. $) that a U.S. investor can earn by investing in the Canadian security is

Exchange-rate risk

When an investor adds international stocks to his or her U.S. stock portfolio,

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 manager of Quantitative International Fund uses EAFE as a benchmark. Last year's performance for the fund and the benchmark were as follows: $\begin{array}{c}\begin{array}{lll} \text { } \\ \text { } \\ \text { } \\ \text { Eur } \\ \text {Aus } \\ \text {FE } \\\end{array}\begin{array}{c} \text { } \\ \text { } \\ \text { EAFE Welght } \\ \text { 0.30 } \\ \text { 0.10} \\ \text { 0.60} \\\end{array}\begin{array}{c} \text { } \\ \text { Return on } \\ \text {Equity Index } \\10\%\\5\%\\15\%\end{array}\begin{array}{c} \text {Currency } \\ \text {Aplication } \\ E_{1} / E_{0.1} \\10\%\\-10\%\\30\%\end{array}\begin{array}{c} \text { } \\ \text { Quantitative's } \\ \text { Welght} \\0.25\\0.25\\0.50\end{array}\begin{array}{c} \text { } \\ \text { } \\ \text {Manager's Return } \\9\%\\8\%\\16\%\end{array}\end{array}$ Calculate Quantitative's country selection return contribution.

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?

U.S. investors

The EAFE is

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

Which country has the highest in GDP per capita?

As exchange rates change, they

International investing

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?

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

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