Question 1

An investment in Mexico produces a return of 80 percent.However,the Mexican peso has just declined by 45 percent relative to the dollar.The previous value of the peso was $.0066.The adjusted return on the investment is

Accepted Answer

The answer of An investment in Mexico produces a return...

Question 2

Investing directly in the international equities markets refers to buying shares

Accepted Answer

Investing directly in the international equities markets refers to buying stocks of foreign companies that are listed on international stock exchanges. While investing in multinational corporations or internationally invested mutual funds may also provide exposure to foreign markets, they are not the same as investing directly in the international equities market.

Question 3

The investor can maximize risk reduction benefits by combining United States securities with those of countries which are _________.

Accepted Answer

The investor can maximize risk reduction benefits by combining United States securities with those of countries which are negatively or least positively correlated with the United States. By including securities from countries with low correlation, the portfolio diversification benefits will be greater, reducing the overall risk of the portfolio.

Question 4

A large number of foreign companies (over 200)have listed their stock on the New York Stock Exchange.

Accepted Answer

This statement is true. As of 2021, there are over 200 foreign companies listed on the New York Stock Exchange.

Question 5

Which of the following is NOT a valid reason for discounting the importance of stable foreign currency in evaluation international investment alternatives?

Accepted Answer

Discounting the importance of stable foreign currency in evaluation international investment alternatives would be erroneous if one assumes that a devaluation in one country is usually offset by an increase in value in another (A) or risk exposure can be hedged through foreign exchange contracts or foreign currency options (C). However, claiming that the overall effect of a devaluation in the economy of the country is insignificant (B) would not be a valid reason.

Question 6

Administrative problems such as different settlement procedures for various markets can best be avoided by

Accepted Answer

Investing in a mutual fund allows investors to pool their money and have it managed by professionals, which can help avoid administrative problems related to different settlement procedures in various markets.

Question 7

There may be an opportunity for profit in a politically unstable country if

Accepted Answer

Domestic investors in politically unstable countries may overreact during times of change, causing market volatility and potential opportunities for profit. It is important to note, however, that investing in politically unstable countries carries a high level of risk and should be approached with caution.

Question 8

Between year end 2002 and 2005,the value of the United States equity markets as a percentage of the total World equity markets has

Accepted Answer

Between 2002 and 2005, the value of the US equity markets decreased slightly from about 53 percent to 47 percent of the total developed market.

Question 9

Direct international investment without the numerous associated administrative problems can be achieved by purchasing shares

Accepted Answer

Purchasing shares of foreign firms which trade on the New York Stock Exchange or NASDAQ allows for direct international investment without the administrative burden of investing in foreign markets. Investing in mutual funds or exchange traded funds may involve indirect international investment, and investing in multinational corporations can still involve administrative hurdles.

Question 10

The second largest equity market in the world at the end of 2005 is that of

Accepted Answer

At the end of 2005, Japan had the second largest equity market in the world, following the United States.

Question 11

Which of the following statements about the information available on publicly traded foreign firms is NOT ?

Accepted Answer

The statement "at least the accounting standards are the same for U.S. and international companies" is not true as accounting standards can vary significantly between countries.

Question 12

Which of the following might be a reason for higher return potential in certain foreign stock markets than in U.S.markets?

Accepted Answer

Both options A and B are valid reasons for why certain foreign stock markets may have a higher return potential than U.S. markets. A smaller economy starting from a lower base of GDP can experience faster growth, and GDP growth rates may be higher in other countries compared to the United States.

Question 13

The main problem associated with the taxation of foreign investors is

Accepted Answer

The answer of The main problem associated with the taxation...

Question 14

Methods of indirect international investment include all of the following except

Accepted Answer

The answer of Methods of indirect international investment include all...

Question 15

Many U.S.companies like Exxon,IBM,and Coca Cola get more than 50 percent of their revenues from foreign markets.

Accepted Answer

Many U.S. companies like Exxon, IBM, and Coca Cola have significant operations and sales in foreign markets, with more than 50 percent of their revenues coming from outside of the United States. This allows them to diversify their revenue streams and reduce dependence on the domestic market.

Question 16

Which of the following statements about mutual funds and closed-end investment companies investing in foreign companies is ?

Accepted Answer

The answer of Which of the following statements about mutual...

Question 17

Correlations between U.S.returns and foreign stock returns appear to remain fairly stable from period to period.

Accepted Answer

By comparing the five sets of correlations, we can see there is not a great amount of stability among the time periods, with some countries such as Italy going from 12^th to 11^th place to 4^th place and back to 13^th place in the latest period. Canada, because of its close ties with the U.S. economy, is highly correlated with the U.S. markets.

Question 18

Political risk can best be effectively reduced or eliminated

Accepted Answer

Political risk can never be completely eliminated, but it can be reduced through diversification. By investing in a variety of countries and regions, investors can spread their risk and minimize the impact of any one country's political instability or economic downturn. Investing only in one region, such as Europe or only in friendly countries to the US, would still leave the portfolio vulnerable to events specific to that region or country.

Question 19

An investor who wishes to achieve high returns and low risk exposure through international diversification would probably look for

Accepted Answer

The investor should look for a compound rate of return higher than that in the United States and a negative or low positive correlation of returns with the United States market to achieve high returns and low risk exposure through international diversification. This ensures that the portfolio is not overly exposed to the US market and provides diversification benefits. Option B suggests stable currencies relative to the dollar, which is important but not the only factor to consider. Option C suggests a compound rate of return equal to that of the United States, which does not necessarily provide higher returns, and a correlation coefficient close to that of the United States, which does not provide sufficient diversification benefits. Option D is not a valid answer as it does not provide any guidance.

Question 20

The benefits of American Depository Receipts (ADRs)are many.Which of the following is not a benefit?

Accepted Answer

Commission rates on ADRs are not necessarily lower due to the holding of stock certificates by a bank; this is not a specific benefit of ADRs.

Quiz 19: International Securities Markets