Question 1

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.

Accepted Answer

A)   1.6037
B)   2.0411
C)   1.7500
D)   2.3369E) A) and C)
F) A) and D)

Question 2

U.S. investors

Accepted Answer

A)   can trade derivative securities based on prices in foreign security markets.
B)   cannot trade foreign derivative securities.
C)   can trade options and futures on the Nikkei stock index of 225 stocks traded on the Tokyo stock exchange and on FTSE (Financial Times Share Exchange)  indexes of U.K. and European stocks.
D)   can trade derivative securities based on prices in foreign security markets and can trade options and futures on the Nikkei stock index of 225 stocks traded on the Tokyo stock exchange and on FTSE (Financial Times Share Exchange)  indexes of U.K. and European stocks.
E)   None of the options are correct.F) B) and D)
G) A) and D)

Question 3

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

Accepted Answer

A)   it will raise his or her risk relative to the risk he or she would face just holding U.S. stocks.
B)   he or she can reduce the risk of his or her portfolio.
C)   he or she will increase his or her expected return but must also take on more risk.
D)   it will have no impact on either the risk or the return of his or her portfolio.
E)   he or she needs to seek professional management because he or she doesn't have access to international investments on his or her own.F) A) and B)
G) A) and C)

Question 4

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

Question 5

In 2017, the U.S. equity market represented __________ of the world equity market.

Accepted Answer

A)   19%
B)   60%
C)   43%
D)   41%E) A) and D)
F) B) and D)

Question 6

Suppose the 1-year risk-free rate of return in the U.S. is 4.5% and the 1-year risk-free rate of return in Britain is 7.7%. The current exchange rate is 1 pound = U.S. $1.60. 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.

Accepted Answer

A)   1.5525
B)   2.0411
C)   1.7500
D)   2.3369E) A) and C)
F) B) and D)

Question 7

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.

Accepted Answer

A)   16.7%
B)   20.0%
C)   28.0%
D)   40.0%
E)   None of the options are correct.F) C) and D)
G) None of the above

Question 8

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) B) and C)
G) B) and E)

Question 9

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

Accepted Answer

A)   foreign exchange risk.
B)   political risk.
C)   translation exposure.
D)   hedging risk.E) A) and D)
F) A) and C)

Question 10

The yield on a 1-year bill in the U.K. is 7%, and the present exchange rate is 1 pound = U.S. $1.65. If you expect the exchange rate to be 1 pound = U.S. $1.45 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)   3.2%.
C)   8%.
D)   −5.97%.
E)   None of the optionsF) A) and D)
G) B) and D)

Question 11

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

Accepted Answer

A)   Euronext.
B)   FTSE.
C)   Nikkei.
D)   Toronto.E) C) and D)
F) B) and D) D

Question 12

Which country has the highest in GDP per capita?

Accepted Answer

A)   Luxembourg
B)   Canada
C)   Germany
D)   U.S.E) C) and D)
F) B) and C) A

Question 13

The present exchange rate is C$ = U.S. $0.78. The 1-year future rate is C$ = U.S. $0.75. The yield on a 1-year U.S. bill is 5%. A yield of __________ on a 1-year Canadian bill will make investor indifferent between investing in the U.S. bill and the Canadian bill.

Accepted Answer

A)   9.2%
B)   8.3%
C)   6.4%
D)   11.3%
E)   None of the optionsF) A) and C)
G) A) and D) A

Question 14

Over the period 2014-2018, 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 0.9.
C)   approximately zero.
D)   0.9 or above.
E)   None of the options are correct.F) A) and B)
G) B) and D)

Question 15

An investor invests in a Japanese bond at 7.0% for one year. If the spot exchange rate is 104.00 yen per USD and the one year forward exchange rate is 99, what return should the investor expect on an equivalent USD investment?

Accepted Answer

A)   9.60%
B)   10.20%
C)   11.92%
D)   12.40%E) None of the above
F) B) and C)

Question 16

Suppose the 1-year risk-free rate of return in the U.S. is 6%. The current exchange rate is 1 pound = U.S. $1.62. The 1-year forward rate is 1 pound = $1.53. 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)   15.44%
B)   13.50%
C)   12.24%
D)   7.62%
E)   None of the optionsF) C) and D)
G) A) and E)

Question 17

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) None of the above
G) A) and B)

Question 18

Which country has the largest stock market compared to GDP?

Accepted Answer

A)   Japan
B)   Germany
C)   South Africa
D)   U.S.E) A) and B)
F) B) and C)

Question 19

You are a U.S. investor who purchased British securities for 4,000 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 4,400 pounds and the pound is worth $1.62.

Accepted Answer

A)   16.7%
B)   18.8%
C)   28.0%
D)   40.0%
E)   None of the optionsF) B) and D)
G) B) and C)

Question 20

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

Exam 25: International Diversification

Correct Answer
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U.S. investors

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

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

Correct Answer
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In 2017, the U.S. equity market represented __________ of the world equity market.

Correct Answer
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WEBS portfolios

Correct Answer
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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

Correct Answer
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The yield on a 1-year bill in the U.K. is 7%, and the present exchange rate is 1 pound = U.S. $1.65. If you expect the exchange rate to be 1 pound = U.S. $1.45 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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Using local currency returns, the S&P 500 has the highest correlation with

Correct Answer
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D

Which country has the highest in GDP per capita?

Correct Answer
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A

The present exchange rate is C$ = U.S. $0.78. The 1-year future rate is C$ = U.S. $0.75. The yield on a 1-year U.S. bill is 5%. A yield of __________ on a 1-year Canadian bill will make investor indifferent between investing in the U.S. bill and the Canadian bill.

Correct Answer
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A

Over the period 2014-2018, most correlations between the U.S. stock index and stock-index portfolios of other countries were

Correct Answer
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An investor invests in a Japanese bond at 7.0% for one year. If the spot exchange rate is 104.00 yen per USD and the one year forward exchange rate is 99, what return should the investor expect on an equivalent USD investment?

Correct Answer
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Suppose the 1-year risk-free rate of return in the U.S. is 6%. The current exchange rate is 1 pound = U.S. $1.62. The 1-year forward rate is 1 pound = $1.53. 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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Using the S&P 500 portfolio as a proxy of the market portfolio

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

Correct Answer
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The EAFE is

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Exam 25: International Diversification

Correct AnswerverifiedShow Answer

U.S. investors

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

Correct AnswerverifiedShow Answer

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

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In 2017, the U.S. equity market represented __________ of the world equity market.

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WEBS portfolios

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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

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The yield on a 1-year bill in the U.K. is 7%, and the present exchange rate is 1 pound = U.S. $1.65. If you expect the exchange rate to be 1 pound = U.S. $1.45 a year from now, the return a U.S. investor can expect to earn by investing in U.K. bills is

Correct AnswerverifiedShow Answer

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

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Which country has the highest in GDP per capita?

Correct AnswerverifiedA

The present exchange rate is C$ = U.S. $0.78. The 1-year future rate is C$ = U.S. $0.75. The yield on a 1-year U.S. bill is 5%. A yield of __________ on a 1-year Canadian bill will make investor indifferent between investing in the U.S. bill and the Canadian bill.

Correct AnswerverifiedA

Over the period 2014-2018, most correlations between the U.S. stock index and stock-index portfolios of other countries were

Correct AnswerverifiedShow Answer

An investor invests in a Japanese bond at 7.0% for one year. If the spot exchange rate is 104.00 yen per USD and the one year forward exchange rate is 99, what return should the investor expect on an equivalent USD investment?

Correct AnswerverifiedShow Answer

Suppose the 1-year risk-free rate of return in the U.S. is 6%. The current exchange rate is 1 pound = U.S. $1.62. The 1-year forward rate is 1 pound = $1.53. 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

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

Correct AnswerverifiedShow Answer

Which country has the largest stock market compared to GDP?

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The EAFE is

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