Deck 15: International Portfolio Investments

Question 1

What is an earnings call?

A)An earnings call occurs when investors in a firm call upon the firm to report its currency income.
B)An earnings call occurs when a brokerage firm requires its clients who have made investments on credit to pay the debt owed to the brokerage firm.
C)An earnings call is a general communication from an investment firm to its clients advising them of the current earnings of the major firms covered by the investment firm.
D)An earnings call is a communication from a firm to the investment community that answers questions about the financial affairs and status of the firm.

Answer 1

An earnings call is a communication from a firm to the investment community that answers questions about the financial affairs and status of the firm.

Question 2

What does the ratio in the Sharpe Index indicate?

A)The risk per unit of return
B)The amount at risk in any investment
C)The amount of potential profit in an investment
D)The return per unit of risk

Answer 2

The return per unit of risk

Question 3

The fact that some mature economies have low GDP while some emerging economies have high GDP is an indication of:

A)inefficient markets.
B)government interference with markets.
C)disparity in national growth.
D)inflation.

Answer 3

disparity in national growth.

Question 4

International investment can affect the Sharpe Index positively by:

A)increasing both return and risk.
B)decreasing return and increasing risk.
C)decreasing both return and risk.
D)increasing return and decreasing risk.

Question 5

What factor might lead a government to control or limit the payments made by domestic companies to foreign investors?

A)Currency fluctuations and difficulty importing goods
B)Current account deficits and balance of payment problems
C)Not enough domestic currency available locally and national pride
D)High inflation and low GDP

Question 6

The phenomenon that is evidenced by an underrepresentation of foreign investments in a portfolio is known as:

A)weighted-average investing.
B)home bias.
C)foreign bias.
D)portfolio investing.

Question 7

Inefficient markets are most likely to be found:

A)where markets are mature and in decline with no usual risk factors.
B)in third world countries where regulations are lax.
C)any time that investors are more interested in short-term profits than long-term growth.
D)where markets are small and developing and have risk factors not found in most other markets.

Question 8

In inefficient markets,asset prices tend to be:

A)lower than normal,so investment opportunities are available.
B)higher than normal,so investment opportunities are limited.
C)abnormally high or low,thereby creating opportunities for profit.
D)subject to the forces of supply and demand.

Question 9

The fundamental risk in a foreign investment that reflects the risk that investors take that the value of the thing invested in will change is called:

A)economic risk.
B)default risk.
C)currency risk.
D)asset risk.

Question 10

Ultimately,what is the net effect of government control of foreign investors?

A)Increased foreign investment in the country because of reduced risk.
B)Increased transaction costs for investors and a desire for higher returns to offset the increased transaction costs.
C)Decreased foreign investment by investors who seek less regulation of their investments.
D)Decreased returns for investors because regulation reduces cost of capital.

Question 11

Investments decisions involve:

A)finding the highest returns possible.
B)balancing returns with risks.
C)finding the lowest risks possible.
D)balancing investment amount with investment return.

Question 12

Generally,diversification of investments internationally allows investors to benefit from:

A)a greater variety of investment opportunities and less risk.
B)the currency diversification effect and less risk.
C)the asset diversification effect and less risk.
D)the currency diversification effect and the asset diversification effect.

Question 13

BRIC nations are:

A)emerging nations in Eastern Europe.
B)Brazil,Russia,India,and China.
C)emerging nations in Africa.
D)Bulgaria,Romania,Czech Republic,and Italy.

Question 14

Information about potential investment opportunities prepared by financial analysts at investment banks,called _____________________,is made available to investors to encourage investment transactions through the investment banks.

A)supply-side analysts
B)investment analysts
C)sell-side analysts
D)investor-focused analysts

Question 15

Investments in emerging markets are attractive from the standpoint of risk-reduction because they:

A)offer higher returns than are available in other markets.
B)have the lowest correlation with U.S.and European equity markets.
C)offer lower risks than are found in other markets.
D)are usually made in USD and avoid currency risk.

Question 16

The returns in markets in many emerging nations are skewed to the right,which means that:

A)the incidence of high returns is larger than normal.
B)there is more risk in the market.
C)there are larger swings in returns in the market.
D)the balance between returns and risks is advantageous.

Question 17

If there is a positive correlation between the value of an asset that is invested in and the value of the currency in which that value is represented:

A)the covariance risk increases.
B)the risk associated with the investment is reduced.
C)the economic risk is increased.
D)the economic risk and the default risk move in opposite directions and reduce overall risk.

Question 18

What firms are more likely to disseminate financial information about the firms to investors and potential investors?

A)Firms based in the European Community
B)Firms in emerging markets
C)U.S.-based firms
D)Firms that rely heavily on investments from foreign investors

Question 19

Investors limited to _________________ are limited in both increasing returns and reducing risks,while investors willing to invest in _______________________ are unconstrained in increasing returns and reducing risks.

A)stocks;bonds
B)debt investing;equities
C)domestic investments;international investments
D)current investments;futures

Question 20

Internal arrangements related to corporate governance include:

A)employment procedures that thoroughly review the backgrounds of executives before they are hired.
B)incentive contracts for managers and executives.
C)policies that prohibit unethical conduct in corporate matters.
D)programs designed to give stockholders a better understanding of corporate actions.

Question 21

The _________________________________ relies on a transparent accounting system that communicates financial information to stockholders and reduces informational asymmetry.

A)Anglo-Saxon model of corporate governance
B)European model of corporate governance
C)common law model of corporate governance
D)government regulation model of corporate governance

Question 22

__________________ are portfolios of investments jointly owned by groups of investors.

A)Joint-stock companies
B)Mutual funds
C)Pension funds
D)Equity holdings

Question 23

Why do the values of ADRs closely track the values of the underlying stock?

A)If there is a discrepancy between the value of ADRs and the values of the underlying stock,arbitragers will quickly cause the values to converge.
B)The only way to value ADRs is in relation to the values of the underlying stock.
C)ADRs have no value except in relation to the underlying stock.
D)Investors will not allow discrepancies between the values of ADRs and the values of underlying stock.

Question 24

What are depository receipts?

Question 25

Foreign equity investments:

A)cannot be made directly by investors from other countries.
B)carry considerable risks,but also offer high returns.
C)can easily be made through any organized stock exchange.
D)are discouraged because informational asymmetry makes such investments too risky.

Question 26

Although mutual funds can diversify risks,studies show that mutual funds:

A)also offer returns in excess of recognized benchmarks.
B)produce returns that vary widely from country to country.
C)underperform compared to recognized benchmarks.
D)have higher transaction costs than other investments.

Question 27

Government bonds issued by Organization for Economic Co-operation and Development countries are generally denominated in:

A)euros.
B)USD.
C)a currency other than the currency of the country issuing the bonds.
D)the currency of the country issuing the bonds.

Question 28

The primary benefit of foreign debt instruments to investors is:

A)low risk.
B)small initial investment requirements.
C)high returns.
D)quick turn-over.

Question 29

What is corporate governance and how does it affect foreign investments?

Question 30

The favored investment in most developing nations is:

A)precious metals.
B)real estate.
C)equities.
D)currency.

Question 31

What is indicated if a mutual fund trades at a discount?

A)It means that the mutual fund is increasing in value.
B)It means that the value of the mutual fund on the mutual fund market is less than the net value of the assets in the fund.
C)It means that investors in the fund value their investments at more than the net value of the assets owned by the fund.
D)It means that the assets in the mutual fund are increasing in value.

Question 32

How does covariance risk affect foreign investments?

Question 33

Mutual funds that allow additional investment by existing owners of shares in the fund or investments by new investors are called:

A)ongoing funds.
B)investment funds.
C)churned funds.
D)open-end funds.

Question 34

Mutual funds whose investments are limited to one or more countries are generally:

A)closed-end funds.
B)open-end funds.
C)ongoing funds.
D)regulated funds.

Question 35

One of the primary factors that discourages direct foreign equity investment is:

A)government regulation.
B)currency risk.
C)high transaction costs.
D)political risk.

Question 36

An often overlooked benefit of debt instruments issued by firms in emerging markets is that:

A)there is an active secondary market for the instruments,making them very liquid.
B)a country risk premium is often built into the yield on the debt instrument,increasing the yield above the yield available on other investments.
C)currency risk is not a consideration since the debt instruments are denominated in USD.
D)political risks are usually minimized by government guarantees of the instruments.

Question 37

The increase in international investing in recent years can be attributed primarily to the:

A)removal of barriers to investing such as capital controls and taxes.
B)encouragement of both domestic and foreign governments.
C)International Monetary Fund.
D)increased investment opportunities in foreign countries.

Question 38

__________________________ is the term used to identify the propensity of investors to invest in ownership interests in firms rather than in other types of investments.

A)Ownership bias
B)Safe investing
C)Equity culture
D)International investing

Question 39

Compare open-end and closed-end mutual funds.

Question 40

How does correlation of assets affect the risks involved in foreign investments?