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Quiz 8 Chapter 19
and 20
Chapter 19:
___________________________________________________________________________
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1.
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In 2011, U.S.
securities represented ______ of the world market for equities.
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2.
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_____ has the highest
market capitalization of listed corporations among developed markets.
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3.
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Total capitalization
of corporate equity in the United States in 2011 was about _______
trillion.
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4.
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If you limit your
investment opportunity set to only the largest six countries in the world in
terms of equity capitalization as a percentage of total global equity
capital, you will include about _______ of the world's equity.
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5.
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Limiting your
investments to the top six countries in the world in terms of market
capitalization may make sense for _________ investor but probably does not
make sense for ________ investor.
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C.
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a security
selection expert; a market timer
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D.
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a fundamental; a
technical
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6.
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WEBS are
____________________.
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A.
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investments in
country-specific portfolios
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B.
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traded exactly like
mutual funds
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D.
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designed to give
investors foreign currency exposure to multiple countries
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7.
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Which one of the
following allows you to purchase the stock of a specific foreign
company?
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8.
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Generally speaking,
countries with ______ capitalization of equities ________.
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A.
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larger; have higher
GDP
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B.
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smaller; are
wealthier
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C.
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larger; have
smaller GDP
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D.
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larger; are
higher-growth countries
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9.
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The 32
"developed" countries with the largest equity capitalization made
up about _____ of the world GDP in 2011.
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10.
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According to a
regression of GDP on market capitalization in 2010, virtually all developed
countries had _______ per capita GDP than (as) predicted by the
regression.
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D.
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sometimes lower and
sometimes higher
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11.
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If the direct quote
for the exchange rate for the U.S. dollar versus the Canadian dollar is .98,
what is the indirect quote?
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12.
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EAFE stands for
_______.
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A.
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Equity And Foreign
Exchange
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B.
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European,
Australian, Far East
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C.
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European, Asian,
Foreign Exchange
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D.
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European, American,
Far East
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13.
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Which one of the
following country risks includes the possibility of expropriation of assets,
changes in tax policy, and restrictions on foreign exchange
transactions?
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14.
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The __________ index
is a widely used index of non-U.S. stocks.
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15.
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Suppose that U.S.
equity markets represent about 35% of total global equity markets and that
the typical U.S. investor has about 95% of her portfolio invested only in
U.S. equities. This is an example of _________.
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B.
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excessive
diversification
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16.
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The four largest
economies in the world in 2010 were ____________.
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A.
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United States,
India, China, and Japan
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B.
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United States,
China, Canada, and Japan
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C.
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United States,
China, Japan, and Germany
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D.
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China, United
Kingdom, Canada, and United States
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17.
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The proper formula
for interest rate parity is ___________.
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A.
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[1 + rf(foreign)]/[1 + rf(US)] = F1/E0
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B.
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[1 + rf(US)]/[1 + rf(foreign)] = E0/F1
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C.
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[1 + rf(US)]/[1 + rf(foreign)] = F0/E0
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D.
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[1 + rf(foreign)]/[1 + rf(foreign)] = F0/E1
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18.
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Research indicates
that exchange risk of the major currencies has been _________ so far in this
century.
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19.
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It appears from
empirical work that exchange rate risk ____________.
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A.
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has been declining
for individual investments in recent years
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B.
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is mostly
diversifiable
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C.
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is mostly
systematic risk
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D.
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is unimportant for
an investment in a single foreign country
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20.
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Passive investors
with well-diversified international portfolios _________.
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A.
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can safely ignore
all political risk in emerging markets
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B.
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can expect very
large diversification gains from their international investing
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C.
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do not need to be
concerned with hedging exposure to foreign currencies
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D.
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can expect returns
to be better than the EAFE on a consistent basis
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21.
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Which stock market
has the largest weight in the EAFE index?
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22.
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The correlation
coefficient between the U.S. stock market index and stock market indexes of
major countries is __________.
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23.
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In 2010, the ___
countries with the largest capitalization of equities made up approximately
60% of the world equity portfolio.
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24.
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Investor portfolios
are notoriously overweighted in home-country stocks. This is commonly called
________.
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D.
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misleading
representation
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25.
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Corruption is
_________ risk variable.
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26.
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A U.S. hedge fund
owns Swiss franc bonds. The fund manager believes that if Swiss interest
rates rise relative to U.S. interest rates, the value of the franc will rise.
To limit the risk to the fund's dollar return, the fund manager should __________.
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A.
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sell the Swiss
franc bonds now
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B.
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sell the Swiss
franc forward
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C.
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probably do nothing
because the franc move will offset the lower bond price
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D.
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enter into an
interest rate swap to pay variable and receive fixed
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27.
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The annual inflation
rate is ______ risk variable.
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28.
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A U.S. insurance firm
must pay €75,000 in 6 months. The spot exchange rate is $1.32 per euro, and
in 6 months the exchange rate is expected to be $1.35. The 6-month forward
rate is currently $1.36 per euro. If the insurer's goal is to limit its risk,
should the insurer hedge this transaction? If so how?
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A.
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The insurer need
not hedge because the expected exchange rate move will be favorable.
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B.
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The insurer should
hedge by buying the euro forward even though this will cost more than the
expected cost of not hedging.
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C.
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The insurer should
hedge by selling the euro forward because this will cost less than the
expected cost of not hedging.
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D.
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The insurer should
hedge by buying the euro forward even though this will cost less than the
expected cost of not hedging.
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29.
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A fund has assets
denominated in euros and liabilities in yen due in 6 months. The 6-month forward
rate for the euro is $1.36 per euro, and the 6-month forward rate for the yen
is 121 yen per dollar. The 6-month forward rate for the euro versus the yen
should be ________ per euro.
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30.
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You invest in various
broadly diversified international mutual funds as well as your U.S.
portfolio. The one risk you probably don't have to worry about affecting your
returns is __________.
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31.
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According to the InternationalCountryRiskGuide in 2011,
which of the following countries was the riskiest according to the current
composite risk rating?
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32.
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Suppose the 6-month
risk-free rate of return in the United States is 5%. The current exchange
rate is 1 pound = US$2.05. The 6-month forward rate is 1 pound = US$2. The
minimum yield on a 6-month risk-free security in Britain that would induce a
U.S. investor to invest in the British security is ________.
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33.
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The quoted interest
rate on a 3-month Canadian security is 8%. The current exchange rate is C$1 =
US$.68. The 3-month forward rate is C$1 = US$.70. The APR (denominated in
US$) that a U.S. investor can earn by investing in the Canadian security is
__________.
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34.
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Suppose the 1-year
risk-free rate of return in the United States is 5% and the 1-year risk-free
rate of return in Britain is 8%. The current exchange rate is $1 = ₤.50. A
1-year future exchange rate of __________ would make a U.S. investor
indifferent between investing in the U.S. security and investing in the
British security.
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35.
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The risk-free
interest rate in the United States is 4%, while the risk-free interest rate
in the United Kingdom is 9%. If the British pound is worth $2 in the spot
market, a 1-year futures rate on the British pound should be worth
__________.
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36.
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The risk-free
interest rate in the United States is 8%, while the risk-free interest rate
in the United Kingdom is 15%. If the 1-year futures price on the British
pound is $2.40, the spot market value of the British pound today should be
__________.
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37.
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The present exchange
rate is C$1 = US$.77. The 1-year futures rate is C$1 = US$.73. The yield on a
1-year U.S. bill is 4%. A yield of __________ on a 1-year Canadian bill will
make investors indifferent between investing in the U.S. bill and the
Canadian bill.
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38.
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The yield on a 1-year
bill in the United Kingdom is 6%, and the present exchange rate is 1 pound =
US$2. If you expect the exchange rate to be 1 pound = US$1.95 a year from
now, the return a U.S. investor can expect to earn by investing in U.K. bills
is approximately __________.
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39.
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Assume there is a
fixed exchange rate between the Canadian and U.S. dollars. The expected
return and standard deviation of return on the U.S. stock market are 13% and
15%, respectively. The expected return and standard deviation of return on
the Canadian stock market are 12% and 16%, respectively. The covariance of
returns between the U.S. and Canadian stock markets is 1.2%. If you invested
50% of your money in the Canadian stock market and 50% in the U.S. stock
market, the expected return on your portfolio would be __________.
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40.
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Assume there is a
fixed exchange rate between the Canadian and U.S. dollars. The expected
return and standard deviation of return on the U.S. stock market are 10% and
15%, respectively. The expected return and standard deviation of return on
the Canadian stock market are 12% and 16%, respectively. The covariance of
returns between the U.S. and Canadian stock markets is .012. 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 on your portfolio would be
__________.
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41.
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Inclusion of
international equities in a U.S. investor's portfolio has historically
produced ___________________.
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A.
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a substantially
reduced portfolio variance
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B.
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a slightly reduced
portfolio variance
|
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C.
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a substantially
poorer portfolio variance
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D.
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a slightly poorer
portfolio variance
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42.
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WEBS are
_____________.
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A.
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mutual funds
marketed internationally on the Internet
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B.
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synthetic domestic
stock indexes
|
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C.
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equity indexes that
replicate the price and yield performance of foreign stock portfolios
|
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D.
|
single stock
investments in a foreign security
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43.
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You are a U.S.
investor who purchased British securities for 3,500 pounds 1 year ago when
the British pound cost $1.35. 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 4,200 pounds and the pound
is worth $1.15.
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44.
|
Real U.S. interest
rates move above Japanese interest rates. If you believe that Japanese
interest rates won't move and that interest rate parity will hold, then
____________.
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A.
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the yen-per-dollar
exchange rate should rise
|
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B.
|
the dollar-per-yen
exchange rate should rise
|
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C.
|
the exchange rate
should stay the same if parity holds
|
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D.
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The answer cannot
be determined from the information given.
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45.
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Suppose a U.S.
investor wants to invest in a British firm currently selling for ₤50 per
share. The investor has $7,000 to invest, and the current exchange rate is
$1.40/₤.
How many shares can the investor
purchase?
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46.
|
Suppose a U.S.
investor wants to invest in a British firm currently selling for ₤50 per
share. The investor has $7,000 to invest, and the current exchange rate is
$1.40/₤.
After 1 year, the exchange rate is unchanged
and the share price is ₤55. What is the dollar-denominated return?
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47.
|
Suppose a U.S.
investor wants to invest in a British firm currently selling for ₤50 per
share. The investor has $7,000 to invest, and the current exchange rate is
$1.40/₤.
After 1 year, the exchange rate is unchanged
and the share price is ₤55. What is the pound-denominated return?
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48.
|
Suppose a U.S.
investor wants to invest in a British firm currently selling for ₤50 per
share. The investor has $7,000 to invest, and the current exchange rate is
$1.40/₤.
After 1 year, the exchange rate is $1.60/₤
and the share price is ₤55. What is the dollar-denominated return?
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49.
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Suppose a U.S.
investor wants to invest in a British firm currently selling for ₤50 per
share. The investor has $7,000 to invest, and the current exchange rate is
$1.40/₤.
After 1 year, the exchange rate is $1.50/₤
and the share price is ₤45. How much of your dollar-denominated return is due
to the currency change?
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50.
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You find that the
exchange rate quote for the yen is 121 yen per dollar. This is an example of
________ quote. You also find that the euro is worth $1.33. This second quote
is an example of _______ quote.
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