Exam 25: International Diversification

The yield on a 1-year bill in the U.K.is 7%, and the present exchange rate is 1 pound = Cad $1.65.If you expect the exchange rate to be 1 pound = Cad $1.45 a year from now, the return a Canadian investor can expect to earn by investing in U.K.bills is

Using the S&P 500 portfolio as a proxy of the market portfolio

The major concern that has been raised with respect to the weighting of countries within the EAFE index is

The performance of an internationally-diversified portfolio may be affected by

The interest rate on a 1-year Canadian security is 8%.The current exchange rate is C$ = US $0.78.The 1-year forward rate is C$ = US $0.76.The return (denominated in U.S.$) that a U.S.investor can earn by investing in the Canadian security is

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 standard deviation of return of your portfolio would be

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 currency selection return contribution.

__________ are mutual funds that invest in one country only.