Deck 13: International Portfolio Investment

Question 1

A Brazilian bond with a coupon rate of 15% at is initially priced at its face value of R$1,000. At the end of the year, the bond is selling at R$950. During the year, the exchange rate goes from R$1 = U.S.$0.75 to R$1 = U.S.$0.85. What is the bond's total dollar return during the period?

A) 15%
B) 10%
C) 22.67%
D) 31.25%

Answer 1

C

Question 2

________ are certificates of ownership by a U.S. bank as a convenience to investors in lieu of the underlying shares it holds in custody.

A) Emerging market indexes
B) Regional funds
C) American depository receipts
D) American derivative claims

Answer 2

C

Question 3

Which one of the following is an advantage of international investing?

A) you can invest in industries that don't exist in the United States
B) you can invest in companies that have lower price?earnings ratios
C) you can invest in companies that are, on average, more profitable than similar U.S. firms
D) you can invest in companies with lower market?book value ratios

Answer 3

A

Question 4

A Thai baht bond with a coupon of 9.5% is initially priced at its face value of Bt 1,000. At the end of one year, the bond is selling for Bt 1,050. If the initial spot rate was Bt 25 = $1, at what end? of?year exchange rate will the dollar return on the bond just equal 10%?

A) Bt 1 = $0.0384
B) Bt 1 = $0.0416
C) Bt 1 = $0.0482
D) Bt 1 = $0.0324

Question 5

One of the barriers to international diversification is the lack of information that is not readily __________ nor ___________ for global investors.

A) provided, comparable
B) accessible, comparable
C) comparable, free
D) provided, free

Question 6

Suppose an investor buys a Japanese bond with a coupon rate of 10% at its price of ¥1,100. The bond's face value is ¥1,000. At the end of the year, the bond is selling at ¥1,050 and the ¥ has depreciated by 10%. What is the dollar return on the bond at the end of the year?

A) -15.6%
B) -5.91%
C) 10.3%
D) 15.8%

Question 7

A Brazilian bond with a coupon rate of 20% is initially priced at its face value of R$1,000. At the end of the year, the bond is selling at R$1,050. If the real depreciates by 75%, what is the dollar return at the end of the year?

A) -155%
B) -68.75%
C) 9.5%
D) 8.5%

Question 8

A Euro bond with a coupon rate of 10% is initially priced at its face value of €1000. At the end of the year, the bond is selling at €1,070. If the € appreciates by 12% during the year, what is the end? of?year dollar return on the bond?

A) 130%
B) 105%
C) 31.04%
D) 95%

Question 9

Instead of buying foreign stocks overseas, investors wishing to diversify internationally can buy foreign equities traded in the United States in the form of

A) currency futures contracts
B) foreign stock options
C) interest rate swaps
D) American Depository Receipts

Question 10

Suppose an investor buys a Taiwanese bond with a face value of NT20,000, which is priced at NT$19,500 and bears a coupon of NT$1,700. At the end of the year, the investor sells the bond at a price of NT$18,030. During the year, the exchange rate goes from NT$1 = U.S.$0.0375 to NT$1 = U.S.$0.0425. What was the investor's U.S. dollar return on this bond?

A) 13.33%
B) 4.23%
C) ?5.69%
D) 14.67%

Question 11

The efficient frontier is the set of portfolios that has the ________ standard deviation for its level of expected return.

A) smallest possible
B) greatest possible
C) most feasible
D) least correlated

Question 12

In the past investing in emerging markets offered _______ risk and _________ returns.

A) the highest, the highest
B) the lowest, the highest
C) the highest, the lowest
D) the lowest, the lowest

Question 13

A Hong Kong bond with a coupon of 10% is initially priced at HK$1,000. At the end of the year, the bond is selling for HK$1,200. If the Hong Kong dollar depreciates by 5%, what will the U.S. dollar return on the bond equal at the end of the year?

A) 10%
B) 13%
C) 23.5%
D) 31%

Question 14

Recent global market behavior indicates that markets tend to be most ________ when volatility is greatest.

A) uncorrelated
B) stable
C) correlated
D) unstable

Question 15

The total dollar return on a foreign security can be decomposed into

A) dividend/interest income
B) capital gains (losses).
C) currency gains (losses).
D) all of the above

Question 16

The difference between a global fund and an international fund is the global fund

A) invests anywhere in the world excluding the United States
B) invests anywhere in the world including the United States
C) invests only outside the United States
D) invests in individual countries

Question 17

A Canadian bond is initially priced at its face value of C$1,000. At the end of the year, the bond is selling for C$1,100. If the Canadian dollar appreciates by 10%, with a 5.5% coupon, what will the U.S. dollar return on the bond equal at the end of the year?

A) 1.05%
B) 27.1%
C) 15%
D) 20%

Question 18

While there is systematic risk within a nation, it may be ______ and diversifiable outside the country after constructing a global portfolio.

A) temporary
B) somewhat temporary
C) non-systematic
D) permanent

Question 19

The lack of ________ , the ability to buy and sell securities efficiently, is a major obstacle on some overseas exchanges.

A) diversification
B) foreign ownership
C) liquidity
D) solvency

Question 20

Suppose the initial price of a French bond is FF 850, the coupon income is FF 70, the end?of?period bond price is FF 1,000, and the franc devalues by 6% against the dollar during the period. What was the bond's total dollar return during the period?

A) 8.24%
B) 18.33%
C) 25.88%
D) 27.44%

Question 21

Suppose you buy a share of Siemens at a price of DM 83. During the year, you receive a dividend of DM 2 and the DM rises by 8%. If the stock price at yearend is DM 80, what was your total dollar return for the year?

A) 10.60%
B) 6.70%
C) 9.83%
D) 8.43%

Question 22

Assume the standard deviation of the U.S. market portfolio is 18.2%, the standard deviation of the non?U.S. portion of the world portfolio is 17.1%, and the correlation between the U.S. and non?U.S. market portfolios is .47. Suppose you invest 25% of your money in the U.S. stock market and the other 75% in the non?U.S. portfolio. What is the standard deviation of your portfolio?

A) 16.7%
B) 15.5%
C) 17.1%
D) 18.6%

Question 23

International diversification provides a better risk?return trade?off than does investing solely in U.S. securities primarily because

A) many foreign industries don't exist in the U.S.
B) there are many more securities to choose from overseas
C) the economic cycles of nations may not be perfectly in phase
D) the foreign securities may follow U.S. markets in their price movements

Question 24

What country's depreciation in 1994 led the stock market tumble by other Latin American stock markets?

A) Mexico
B) Argentina
C) Brazil
D) Columbia

Question 25

Suppose an investor buys a share of British Petroleum at a price of £32 at the start of the year. During the year, the investor receives a dividend of £1.5. At the end of the year, the price of BP is £34. During the year, the exchange rate goes from £1 = $1.78 to £1 = $1.63. What was the investor's dollar return on BP?

A) ?2.35%
B) ?6.47%
C) 1.59%
D) 10.94%

Question 26

Suppose an investor buys a UK bond with a coupon rate of 8% at its price of £990. The bond's face value is £1,000. If the British pound depreciates by 5%, at what end? of?year selling price of this bond will the dollar return on the bond just equal 10%?

A) 1062
B) 1100
C) 1000
D) 1300

Question 27

Which of the following statements is most CORRECT with respect to international diversification?

A) the gains from diversification may be diminished due to combined correlations accompanied by volatility in world markets
B) world markets always seem to be most uncorrelated when volatility is present
C) world markets have displayed relatively low and fixed correlations over the last five years
D) global diversification produces gain even when world markets have correlations value near one.

Question 28

Suppose an investor buys a share of Sony at a price of ¥38,720 at the start of the year. During the year, the investor receives a dividend of ¥500. At the end of the year, the price of Sony is ¥49,560. During the year, the exchange rate goes from ¥150 = $1 to ¥175 = $1. What was the investor's dollar return on Sony?

A) 29.29%
B) 10.82%
C) ?3.24%
D) ?8.23%

Question 29

Which one of the following are NOT a barrier to international diversification.

A) lack of foreign market liquidity
B) easy convertibility of many currencies
C) inadequate information
D) lack of international accounting standards

Question 30

Assume the standard deviation of the U.S. market portfolio is 18.2%, the standard deviation of the non?U.S. portion of the world portfolio is 17.1%, and the correlation between the U.S. and non?U.S. market portfolios is .47. Suppose you invest 40% of your money in the U.S. stock market and the other 60% in the non?U.S. portfolio. What is the standard deviation of your portfolio?

A) 17.7%
B) 9.4%
C) 15.1%
D) 18.3%