Question 1

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%.E) B) and C)
F) A) and C)

Question 2

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.F) C) and D)
G) A) and E)

Question 3

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.F) A) and E)
G) A) and D)

Question 4

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

Question 5

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.F) A) and E)
G) C) and E)

Question 6

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.F) All of the above
G) A) and B)

Question 7

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%.E) B) and C)
F) B) and D)

Question 8

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.F) A) and B)
G) A) and C)

Question 9

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.E) A) and B)
F) None of the above

Question 10

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%F) B) and E)
G) C) and D)

Question 11

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

Question 12

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.F) C) and E)
G) A) and D)

Question 13

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.F) B) and D)
G) A) and B)

Question 14

Which country has the largest stock market compared to GDP?

Accepted Answer

A)   Japan
B)   Germany
C)   Hong Kong
D)   U.S.E) A) and C)
F) None of the above

Question 15

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%.F) C) and E)
G) B) and E)

Question 16

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

Accepted Answer

A)   Euronext
B)   FTSE
C)   Nikkei
D)   Toronto
E)   ShanghaiF) A) and B)
G) B) and C)

Question 17

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.F) C) and D)
G) B) and E)

Question 18

________ 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.F) None of the above
G) C) and E)

Question 19

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.F) D) and E)
G) A) and D)

Question 20

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.F) B) and D)
G) All of the above

Exam 19: International Diversification

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

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

Correct Answer
verified

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?

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

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

Correct Answer
verified

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

Correct Answer
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________ are mutual funds that invest in one country only.

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

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

Correct Answer
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Investors looking for effective international diversification should

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
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WEBS portfolios

Correct Answer
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The average country equity market share is

Correct Answer
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The EAFE is

Correct Answer
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Home bias refers to

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

Correct Answer
verified

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

Correct Answer
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Which country has the largest stock market compared to GDP?

Correct Answer
verified

Exam 19: International Diversification

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

________ are mutual funds that invest in one country only.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Investors looking for effective international diversification should

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

WEBS portfolios

Correct AnswerverifiedShow Answer

The average country equity market share is

Correct AnswerverifiedShow Answer

The EAFE is

Correct AnswerverifiedShow Answer

Home bias refers to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which country has the largest stock market compared to GDP?

Correct AnswerverifiedShow Answer

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