Question 1

Which equity index had the highest volatility in terms of U.S.dollar-denominated returns for the period of five years ending in October 2016?

Accepted Answer

A) Shanghai 
B) India 
C) Nikkei 
D) U.S. 
A) Shanghai 
B) India 
C) Nikkei 
D) U.S.

Question 2

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

Accepted Answer

A) foreign exchange risk. 
B) political risk. 
C) translation exposure. 
D) hedging risk. 
A) foreign exchange risk. 
B) political risk. 
C) translation exposure. 
D) hedging risk.

Question 3

The manager of Quantitative International Fund uses EAFE as a benchmark.Last year's performance for the fund and the benchmark were as follows:   Calculate Quantitative's country selection return contribution.

Accepted Answer

A) 12.5% 
B) -12.5% 
C) 11.25% 
D) -1.25% 
A) 12.5% 
B) -12.5% 
C) 11.25% 
D) -1.25%

Question 4

The interest rate on a 1-year Canadian security is 7.8%.The current exchange rate is C$ = US $0.79.The 1-year forward rate is C$ = US $0.77.The return (denominated in U.S.$) that a U.S.investor can earn by investing in the Canadian security is

Accepted Answer

A) 3.59%. 
B) 4.00%. 
C) 5.07%. 
D) 8.46%. 
A) 3.59%. 
B) 4.00%. 
C) 5.07%. 
D) 8.46%.

Question 5

In 2015, the U.S.equity market represented __________ of the world equity market.

Accepted Answer

A) 19% 
B) 60% 
C) 43% 
D) 41% 
A) 19% 
B) 60% 
C) 43% 
D) 41%

Question 6

The present exchange rate is C$ = U.S.$0.78.The 1-year future rate is C$ = U.S.$0.76.The yield on a 1-year U.S.bill is 4%.A yield of __________ on a 1-year Canadian bill will make an investor indifferent between investing in the U.S.bill and the Canadian bill.

Accepted Answer

A) 2.4% 
B) 1.3% 
C) 6.4% 
D) 6.7% 
A) 2.4% 
B) 1.3% 
C) 6.4% 
D) 6.7%

Question 7

Assume there is a fixed exchange rate between the Canadian and U.S.dollar.The expected return and standard deviation of return on the U.S.stock market are 18% and 15%, respectively.The expected return and standard deviation on the Canadian stock market are 13% and 20%, respectively.The covariance of returns between the U.S.and Canadian stock markets is 1.5%. If you invested 50% of your money in the Canadian stock market and 50% in the U.S.stock market, the expected return on your portfolio would be

Accepted Answer

A) 12.0%. 
B) 12.5%. 
C) 13.0%. 
D) 15.5%. 
A) 12.0%. 
B) 12.5%. 
C) 13.0%. 
D) 15.5%.

Question 8

The manager of Quantitative International Fund uses EAFE as a benchmark.Last year's performance for the fund and the benchmark were as follows:   Calculate Quantitative's stock selection return contribution.

Accepted Answer

A) 1.0% 
B) -1.0% 
C) 3.0% 
D) 0.25% 
A) 1.0% 
B) -1.0% 
C) 3.0% 
D) 0.25%

Question 9

__________ refers to the possibility of expropriation of assets, changes in tax policy, and the possibility of restrictions on foreign exchange transactions.

Accepted Answer

A) Default risk 
B) Foreign exchange risk 
C) Market risk 
D) Political risk 
A) Default risk 
B) Foreign exchange risk 
C) Market risk 
D) Political risk

Question 10

Suppose the 1-year risk-free rate of return in Canada is 4% and the 1-year risk-free rate of return in Britain is 6%.The current exchange rate is 1 pound = Cad.$1.67.A 1-year future exchange rate of __________ for the pound would make a Canadian investor indifferent between investing in the Canadian security and investing in the British security.

Accepted Answer

A) 1.6385 
B) 2.0411 
C) 1.7500 
D) 2.3369 
A) 1.6385 
B) 2.0411 
C) 1.7500 
D) 2.3369

Question 11

WEBS portfolios

Accepted Answer

A) are passively managed. 
B) are shares that can be sold by investors. 
C) are free from brokerage commissions. 
D) are passively managed and are shares that can be sold by investors. 
A) are passively managed. 
B) are shares that can be sold by investors. 
C) are free from brokerage commissions. 
D) are passively managed and are shares that can be sold by investors.

Question 12

Suppose the 1-year risk-free rate of return in Canada.is 4.5% and the 1-year risk-free rate of return in Britain is 7.7%.The current exchange rate is 1 pound = Cad.$1.60.A 1-year future exchange rate of __________ for the pound would make a Canadian investor indifferent between investing in the Canadian security and investing in the British security.

Accepted Answer

A) 1.5525 
B) 2.0411 
C) 1.7500 
D) 2.3369 
A) 1.5525 
B) 2.0411 
C) 1.7500 
D) 2.3369

Question 13

Which country has the highest in GDP per capita?

Accepted Answer

A) Luxembourg 
B) Canada 
C) Germany 
D) U.S. 
A) Luxembourg 
B) Canada 
C) Germany 
D) U.S.

Question 14

Home bias refers to

Accepted Answer

A) the tendency to vacation in your home country instead of traveling abroad. 
B) the tendency to believe that your home country is better than other countries. 
C) the tendency to give preferential treatment to people from your home country. 
D) the tendency to overweight investments in your home country. 
A) the tendency to vacation in your home country instead of traveling abroad. 
B) the tendency to believe that your home country is better than other countries. 
C) the tendency to give preferential treatment to people from your home country. 
D) the tendency to overweight investments in your home country.

Question 15

The interplay between interest rate differentials and exchange rates, such that each adjusts until the foreign exchange market and the money market reach equilibrium, is called the

Accepted Answer

A) Purchasing Power Parity Theory. 
B) Balance of Payments. 
C) Interest Rate Parity Theory. 
D) None of the options are correct. 
A) Purchasing Power Parity Theory. 
B) Balance of Payments. 
C) Interest Rate Parity Theory. 
D) None of the options are correct.

Question 16

Which equity index had the lowest volatility in terms of U.S.dollar-denominated returns for the period of five years ending in October 2016?

Accepted Answer

A) Korea 
B) U.S. 
C) Toronto 
D) Nikkei 
A) Korea 
B) U.S. 
C) Toronto 
D) Nikkei

Question 17

Which country has the largest stock market compared to GDP?

Accepted Answer

A) Japan 
B) Germany 
C) Hong Kong 
D) U.S. 
A) Japan 
B) Germany 
C) Hong Kong 
D) U.S.

Question 18

Exchange-rate risk

Accepted Answer

A) results from changes in the exchange rates between the currency of the investor and the country in which the investment is made. 
B) can be hedged by using a forward or futures contract in foreign exchange. 
C) cannot be eliminated. 
D) results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and cannot be eliminated. 
E) results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and can be hedged by using a forward or futures contract in foreign exchange. 
A) results from changes in the exchange rates between the currency of the investor and the country in which the investment is made. 
B) can be hedged by using a forward or futures contract in foreign exchange. 
C) cannot be eliminated. 
D) results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and cannot be eliminated. 
E) results from changes in the exchange rates between the currency of the investor and the country in which the investment is made and can be hedged by using a forward or futures contract in foreign exchange.

Question 19

The EAFE is

Accepted Answer

A) the East Asia Foreign Equity index. 
B) the Economic Advisor's Foreign Estimator index. 
C) the European and Asian Foreign Equity index. 
D) the European, Asian, French Equity index. 
E) the European, Australian, Far East index. 
A) the East Asia Foreign Equity index. 
B) the Economic Advisor's Foreign Estimator index. 
C) the European and Asian Foreign Equity index. 
D) the European, Asian, French Equity index. 
E) the European, Australian, Far East index.

Question 20

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

Accepted Answer

A) foreign exchange risk. 
B) political risk. 
C) translation exposure. 
D) hedging risk. 
A) foreign exchange risk. 
B) political risk. 
C) translation exposure. 
D) hedging risk.

Exam 25: International Diversification

Which equity index had the highest volatility in terms of U.S.dollar-denominated returns for the period of five years ending in October 2016?

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

The manager of Quantitative International Fund uses EAFE as a benchmark.Last year's performance for the fund and the benchmark were as follows: Calculate Quantitative's country selection return contribution.

The interest rate on a 1-year Canadian security is 7.8%.The current exchange rate is C$ = US $0.79.The 1-year forward rate is C$ = US $0.77.The return (denominated in U.S.$) that a U.S.investor can earn by investing in the Canadian security is

In 2015, the U.S.equity market represented __________ of the world equity market.

The present exchange rate is C$ = U.S.$0.78.The 1-year future rate is C$ = U.S.$0.76.The yield on a 1-year U.S.bill is 4%.A yield of __________ on a 1-year Canadian bill will make an investor indifferent between investing in the U.S.bill and the Canadian bill.

The manager of Quantitative International Fund uses EAFE as a benchmark.Last year's performance for the fund and the benchmark were as follows: Calculate Quantitative's stock selection return contribution.

__________ refers to the possibility of expropriation of assets, changes in tax policy, and the possibility of restrictions on foreign exchange transactions.

WEBS portfolios

Which country has the highest in GDP per capita?

Home bias refers to

The interplay between interest rate differentials and exchange rates, such that each adjusts until the foreign exchange market and the money market reach equilibrium, is called the

Which equity index had the lowest volatility in terms of U.S.dollar-denominated returns for the period of five years ending in October 2016?

Which country has the largest stock market compared to GDP?

Exchange-rate risk

The EAFE is

The possibility of experiencing a drop in revenue or an increase in cost in an international transaction due to a change in foreign exchange rates is called

The Investment Environment

Financial Markets, Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioural Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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