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Exam 25: International Diversification

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Question 21

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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) none of the above.

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

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Question 22

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The average country equity market share is

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 D)
G) All of the above

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Question 23

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Investors looking for effective international diversification should

Discuss performance evaluation of international portfolio managers in terms of potential sources of abnormal returns.

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.

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

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

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

The developed country with the highest average local-currency equity-market excess return between 2000 and 2009 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 developed country with the highest average U.S.dollar equity-market excess return between 2000 and 2009 is

Marla holds her portfolio 100% in U.S.securities.She tells you that she believes foreign investing can be extremely hazardous to her portfolio.She's not sure about the details,but has "heard some things".Discuss this idea with Marla by listing three objections you have heard from your clients who have similar fears.Explain each of the objections is subject to faulty reasoning.

"ADRs" stands for ___________ and "WEBS" stands for ____________.

The straightforward generalization of the simple CAPM to international stocks is problematic because __________.

The emerging market country with the lowest average U.S.dollar equity-market excess return between 2000 and 2009 is

-Calculate Quantitative's currency selection return contribution.

The __________ equity market had the lowest average U.S.dollar excess return between 2000 and 2009.

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

The performance of an internationally diversified portfolio may be affected by