Question 1

The report, "101 Years of Global Investment Returns", by Princeton University shows that the correlation coefficients between the Canadian stock market and other developed countries generally fall into the range of

Accepted Answer

The report states that the correlation coefficients generally fall into the range of 0 and 0.5, which indicates a low to moderate correlation between the Canadian stock market and other developed countries. Therefore, option B is the best choice as it represents this range.

Question 2

When Canadians buy US Treasury bonds, they are actually making two investments, one in the foreign securities and the other in

Accepted Answer

When Canadians purchase US Treasury bonds, they are investing in U.S. dollars because they need to convert their Canadian dollars into U.S. dollars to make the purchase. This exposes them to exchange rate risk, making it a separate investment in the currency itself.

Question 3

In 2010, the Hungarian stock market provided an average return of _________ in US dollars.

Accepted Answer

The question asks for the average return of the Hungarian stock market in US dollars in 2010. The correct answer can be found by looking up the return of the Budapest Stock Exchange (BSE) in 2010 and converting it from Hungarian forints to US dollars. According to historical data, the BSE had an average return of 29.1% in local currency terms in 2010. The average exchange rate for 2010 was 210.22 HUF/USD, which means that the average return in US dollar terms was approximately +29.1%*(1/210.22) = +0.138 or 13.8%. Therefore, the best choice is C) +29.1%.

Question 4

What is the proposed maximum amount of foreign content in an RRSP account after 2005?

Accepted Answer

After 2005, the restriction on the amount of foreign content allowed in an RRSP (Registered Retirement Savings Plan) was eliminated, allowing for up to 100% foreign content.

Question 5

Potential barriers to international investment include

Accepted Answer

All the options mentioned are potential barriers to international investment. Limited benefit from diversification can occur if the investments are concentrated in one specific region or industry, leading to a lack of portfolio diversification benefits. Double taxation of foreign investment income can discourage investment and reduce returns. Exchange rate fluctuations can add volatility to investment returns, making them uncertain. Ethnic strife or political instability can also create uncertainty, leading to decreased investment opportunities.

Question 6

Exchange rate risk refers to

Accepted Answer

Exchange rate risk refers to the potential loss that can occur from an unexpected change in exchange rates, which can negatively impact the return on investments. Choices A, B, and C all refer to expected changes or high volatility in exchange rates, but exchange rate risk specifically refers to the possibility of unexpected changes.

Question 7

The diversification advantage correlation amongst international stock markets has been diminished in recent years due to:

Accepted Answer

Improvements in information technology and globalization have made it easier and more efficient for investors to access and trade in international stock markets, reducing the correlation advantage of diversification.

Question 8

Regarding political risk, foreign investors care

Accepted Answer

Foreign investors care about all of these factors as they can have a significant impact on their investments. Foreign fund transfers can be restricted or limited, expropriation can result in the loss of their assets, withholding interests can reduce their returns, and exchange rate controls can affect the value of their investments. Therefore, all of these factors are important considerations for foreign investors when assessing political risk.

Question 9

An individual has well-performed investments in a foreign stock market. If domestic currency depreciates, this will certainly

Accepted Answer

The answer of An individual has well-performed investments in a...

Question 10

Major differences between international and domestic portfolio investment include all of the following except

Accepted Answer

The answer of Major differences between international and domestic portfolio...

Question 11

In 2010, the Spanish stock market provided an average return of _________ in US dollars.

Accepted Answer

In 2010, the Spanish stock market provided an average return of +20.7% in US dollars. This was a period of recovery following the global financial crisis of 2008-2009, where markets around the world, including Spain, were beginning to rebound, though the performance varied significantly from one market to another.

Question 12

Emerging markets with high risk will likely have the

Accepted Answer

Emerging markets with high risk often have weaker currencies due to economic instability, political risk, and lower investor confidence, which can lead to currency depreciation.

Question 13

Getting into the international markets, Canadian investors are far better off to

Accepted Answer

Buying international index funds provides diversification across a range of countries and companies, reducing risk and providing exposure to a broad range of global markets. This approach allows investors to participate in the growth potential of international markets without having to pick single stocks or currencies, which can be risky and require more research and expertise. Additionally, focusing solely on foreign bonds may limit returns as equities tend to offer higher returns over the long-term. A 30% foreign content may not provide enough exposure to capture the benefits of global diversification.

Question 14

Which of the following is not an example of political risk?

Accepted Answer

The answer of Which of the following is not an...

Question 15

Which of the following involves political risk?

Accepted Answer

Political risk typically involves the risk of loss due to political instability or changes in a country, such as expropriation, nationalization, or changes in tax policy. None of the options provided directly involve political risk; they are more related to exchange rate risk.

Question 16

A lower correlation between a foreign stock market and the Canadian stock market may

Accepted Answer

A lower correlation between a foreign stock market and the Canadian stock market encourages more foreign diversification of Canadian portfolios. This is because when two markets have a low correlation, they tend to move in different directions. Thus, investing in a foreign market with a lower correlation to the Canadian market can provide diversification benefits and potentially reduce overall portfolio volatility.

Question 17

Which of the follow are examples of political risk?
I. The President of the United States decides not to approve a North American oil pipeline.
II. The Governor of the Bank of Canada makes public comments about the high level of personal debt in Canada.
III. The United Nations threatens an embargo against countries developing nuclear weapons.
IV. The Government of Canada passes a law calling for a reduction in government services.

Accepted Answer

I is an example of political risk as it involves a major governmental decision that affects a specific industry. III is an example of political risk because the threat of an embargo can severely impact international trade and commerce. IV is an example of political risk as it involves a change in government policy that can affect businesses that rely on government services. II is not an example of political risk as it is a comment about the state of the economy, and does not involve a specific political decision that could impact businesses or industries.

Question 18

Which of the following carries the least risk?

Accepted Answer

US Treasury bills have the lowest risk as they are backed by the US government and are considered to have virtually no default risk.

Question 19

The performance of an international funds can be influenced by the selection of

Accepted Answer

All of the above choices can influence the performance of an international fund.

Component selection refers to selecting specific companies or industries to invest in within a country or region. This can affect the fund's performance if those companies or industries perform well or poorly.

Country selection refers to selecting which countries to invest in. Different countries have different economies, political situations, and regulations, which can affect the performance of a fund.

Currency selection refers to investing in different currencies. Currency exchange rates can have a significant impact on investment returns, as changes in exchange rates can affect the value of the underlying investments.

Timing refers to the timing of buying and selling investments. Depending on market conditions, the timing of buying or selling investments can have a significant impact on the performance of a fund.

Question 20

International investing

Accepted Answer

The answer of International investing
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Quiz 20: International Portfolio Investment