Deck 15: Investing Internationally

Question 1

From a U.S. perspective, international investing began in earnest in

A) 1920.
B) 1950.
C) 1970.
D) 1985.

Answer 1

1970.

Question 2

The original motivation for international investing was primarily

A) to increase returns.
B) to reduce risk.
C) to satisfy public demand.
D) to satisfy regulatory requirement.

Answer 2

to reduce risk.

Question 3

Which of the following statements regarding international investments is most correct?

A) Correlations between U.S. and foreign markets are high.
B) Correlations between U.S. and foreign markets rise during bull markets.
C) Correlations between U.S. and foreign markets rise during bear markets.
D) Correlations between U.S. and foreign markets are usually near zero.

Answer 3

Correlations between U.S. and foreign markets rise during bear markets.

Question 4

About what percentage of the world's stock market opportunities are outside the U.S.?

A) one fourth
B) one third
C) one half
D) two thirds

Question 5

What percentage of the world's government bonds come from a non-U.S. government?

A) 60%
B) 45%
C) 30%
D) 15%

Question 6

An American Depository Receipt is usually considered to be

A) an equity security.
B) a money market security.
C) a fixed income security.
D) a bank deposit.

Question 7

A sponsored ADR is issued with the blessing of

A) a foreign government.
B) the U.S. government.
C) the underlying company.
D) the World Bank.

Question 8

The country with the greatest number of ADR issues is

A) Germany.
B) United Kingdom.
C) Hong Kong.
D) Mexico.

Question 9

The largest bank participant in the ADR business is

A) Bank of New York.
B) Shawmut Bank.
C) Chase Manhattan Bank.
D) World Bank.

Question 10

An ADR analog in the Euromarket is the

A) Euro Depository Receipt (EDR).
B) Global Depository Receipt (GDR).
C) Universal Depository Receipt (UDR).
D) Cross-Market Depository Receipt (CDR).

Question 11

A type of investment company holding foreign securities and often trading on a stock exchange is the

A) REIT.
B) foreign mutual fund.
C) country fund.
D) open-end investment company.

Question 12

A closed end investment company often sells at a _____ to its _____ .

A) discount, book value.
B) premium, book value.
C) discount, market value.
D) premium, market value.

Question 13

Pension funds have their largest emerging market exposure in

A) Australia.
B) Asia.
C) South America.
D) Central Europe.

Question 14

Of particular concern to a portfolio manager are emerging markets'

A) traditionally high dividend yields.
B) traditionally low tax rates.
C) volatility.
D) small bid-ask spreads.

Question 15

In emerging markets, U.S. security analysts are especially concerned with

A) a lack of accounting information.
B) fraud.
C) thinly traded markets.
D) all of the above.

Question 16

Country risk refers to

A) a country's willingness to pay its foreign exchange obligations.
B) a country's ability to pay its foreign exchange obligations.
C) a country's willingness and ability to pay its foreign exchange obligations.
D) the risk of loss due to currency fluctuations.

Question 17

Country risk is composed of

A) foreign currency risk and economic risk.
B) political risk and economic risk.
C) interest rate risk and foreign currency risk.
D) market risk and interest rate risk.

Question 18

Trading costs in international markets are likely to be

A) higher than in the U.S.
B) lower than in the U.S.
C) comparable to those in the U.S.
D) much more volatile than those in the U.S.

Question 19

A component of trading costs that is especially important in international investing is

A) flotation costs.
B) premium discounts.
C) market pressure.
D) customs duties.

Question 20

The percentage of World Bank loans on which the borrowed has defaulted is about

A) zero.
B) 5%.
C) 15%.
D) 90%.

Question 21

When one hears that there is an "opportunity for a stock investment free lunch"in emerging markets, this means:

A) emerging markets have a higher level of efficiency than U.S. equity markets.
B) emerging markets have less market efficiency than U.S. equity markets.
C) it might be possible to profit by taking advantage of new information found on companies traded in emerging markets.
D) both b and c.

Question 22

An unsponsored ADR is issued by the sponsor:

A) with the involvement of the foreign company.
B) without the involvement of the foreign company.
C) with the funds raised going to the foreign company.
D) with the sponsor trading cash for the ADR's owned by investors.

Question 23

All but one of the following is an advantages of a foreign company using ADR's in the U.S.?

A) ADR's broaden the shareholder base of the company.
B) ADR's offers opportunities to raise capital in U.S. markets.
C) no dividends are paid to investors in ADR's.
D) ADR's traded in the U.S. provide increased name recognition.

Question 24

A country fund:

A) is a closed-end investment company that is usually exchange traded.
B) will always sell (NAV) at a premium over book value.
C) are mostly traded in Nashville.
D) always have just foreign securities in the portfolio.

Question 25

How can investing in emerging stock markets reduce risk of a U.S. management stock portfolio?

A) Emerging markets stocks have less price volatility than average U.S. stocks.
B) If total risk is reduced through diversification effects from the investment.
C) Emerging market investments reduce total country risk of the portfolio.
D) none of the above.

Question 26

People invest in international securities primarily due to their

A) growth potential
B) price stability
C) limited risks
D) information availability

Question 27

The primary reasons for investing in emerging markets include all of the following except

A) to add value
B) to reduce risk
C) to increase cash flow
D) it is a fad

Question 28

Approximately one-half of the world's exchange-listed companies are located outside the United States.

Question 29

Today, most institutional funds have at least 5% of their assets in foreign securities.

Question 30

In the United States, international investing began in earnest in the early 1980s.

Question 31

Portfolio risk reduction was the original motivation for international investing.

Question 32

The Federal Reserve Board issues American Depository Receipts on many foreign securities.

Question 33

A sponsored ADR is issued in conjunction with a single sponsoring bank.

Question 34

The first ADRs appeared in the 1950s.

Question 35

Closed-end country funds often sell at a discount from net asset value.

Question 36

The two most popular emerging market exposure among pension funds are Asia and Latin America.

Question 37

By international convention, a single ADR always represents a single foreign share.

Question 38

Securities are not traded out of or into a unit investment trust.

Question 39

Emerging markets stocks tend to attract income investors.

Question 40

Rates of return to U.S. investors in emerging markets should be higher than returns in the U.S.

Question 41

Economic risk is made up of country and political risks.

Question 42

Low per capita GNP is a common theme of countries where emerging market exist.

Question 43

If the dollar appreciates while a U.S. investor is invested in Canadian markets, foreign exchange risk has favorably impacted the return of the investor.

Question 44

Analysis of specific economic developments in an emerging markets country is a good way to screen emerging market listed companies.

Question 45

A global depository receipt may represent ownership in a U.S. firm.

Question 46

A single ADR may represent more than one share of a foreign company.

Question 47

Most country funds have NAV greater than their book value.

Question 48

Higher rates of return in emerging markets may be the reward for added risk assumed by the investor.

Question 49

If a U.S. investor earns 20% in a pound denominated investment while the U.S. dollar appreciated approximately 5%, the return to the U.S., investor was approximately 25%.

Question 50

An ADR investor earns the dividend from the underlying stock but gives up his/her voting rights in the stock.

Question 51

There is little or no risk exposure to U.S. investors when they invest in foreign central bank notes.

Question 52

The lack of high quality investment information is a barrier to capital formation both in the U.S. and in emerging markets.

Question 53

Country funds are the same as international mutual funds.