Q&A Hero

Q: ______ are private partnerships of a small number of wealthy investors, are often subject to lock-up periods, and are allowed to pursue a wide range of investment activities. A. Hedge funds B. Closed-end funds C. REITs D. Mutual funds

Q: A(n) _______________ hedge fund attempts to profit from situations such as mergers, acquisitions, restructuring, bankruptcy, or reorganization. A. multistrategy B. managed futures C. dedicated short bias D. event-driven

Q: Hedge funds are typically set up as _______________. A. limited liability partnerships B. corporations C. REITs D. mutual funds

Q: Which of the following are characteristics of a hedge fund? I. Pooling of assets II. Strict regulatory oversight by the SEC III. Investing in equities, debt instruments, and derivative instruments IV. Professional management of assets A. I and II only B. II and III only C. III and IV only D. I, III, and IV only

Q: All exchange rates are expressed as units of foreign currency that can be purchased with one U.S. dollar. Answer the following about decomposing the manager's performance.What is the difference in return of the manager's portfolio due to stock selection? A. 1.15%B. 3.25%C. 5.45%D. 6.13%

Q: All exchange rates are expressed as units of foreign currency that can be purchased with one U.S. dollar. Answer the following about decomposing the manager's performance.What is the difference in return of the manager's portfolio due to country selection? A. -.60%B. -.75%C. .12%D. .22%

Q: All exchange rates are expressed as units of foreign currency that can be purchased with one U.S. dollar. Answer the following about decomposing the manager's performance.What is the difference in return of the manager's portfolio due to currency selection? A. -5%B. -3%C. 2%D. 1%

Q: One year U.S. interest rates are 7%, and European interest rates are 5%. The spot euro direct exchange rate quote is 1.30 and the 1-year forward rate direct quote is 1.25. If you can borrow either $1 million or 1 million to start with, what would be your dollar profits from interest arbitrage based on these data? A. $60,384 B. $42,973 C. $68,422 D. $78,500

Q: One year U.S. interest rates are 5%, and European interest rates are 7%. The spot euro direct exchange rate quote is 1.32, and the 1-year forward rate direct quote is 1.35. If you can borrow either $1 million or 1 million to start with, what would be your dollar profits from interest arbitrage based on these data? A. $94,322 B. $55,345 C. $44,318 D. $33,595

Q: The variation in the betas of emerging markets suggests that ____________. A. emerging markets are more uniform than developed markets B. beta does not hold in international markets C. international diversification may reduce portfolio risk D. riskier emerging markets have uniformly lower betas

Q: WEBS differ from mutual funds in that: I. WEBS can be shorted. II. WEBS trade continuously on the AMEX. III. WEBS are passively managed. A. II only B. II and III only C. I and III only D. I, II, and III

Q: Of the following, which is the most commonly used international index? A. DJIA B. EAFE C. Russell 2000 D. S&P 500

Q: The major participants who directly purchase securities in the capital markets of other countries are predominantly ____________. A. large institutional investors B. individual investors C. government agencies D. central banks

Q: In the PRS financial risk ratings, the United States rates poorly because of the U.S. ________. I. Large budget deficit II. Large trade deficit III. Large amount of total debt A. I only B. I and II only C. I and III only D. I, II, and III

Q: The yen-per-dollar spot rate is 104. The yen-per-dollar forward rate is 107. If the U.S. risk-free rate is 2.4%, what is the likely yen risk-free rate? A. 1.24% B. 2.35% C. 3.98% D. 5.35%

Q: The risk-free rate in the United States is 4%, and the risk-free rate in Japan is 1.2%. If the spot rate of yen to dollars is 105, what is the likely yen-per-dollar forward rate? A. 101 B. 102 C. 105 D. 108

Q: The risk-free rate in the United States is 2.5%, and the risk-free rate in Europe is 3.2%. If the spot rate of dollars per euro is 1.32, what is the likely forward rate in terms of dollars per euro? A. 1.30 B. 1.31 C. 1.32 D. 1.33

Q: A country has a PRS political risk rating of 75, a financial score of 40, and an economic score of 35. The country's composite rating is _________. A. 75 B. 50 C. 40 D. 35

Q: An importer of televisions from Japan has a contract to purchase a shipment of televisions for 2 million yen. The spot rate increases from 105 yen per dollar to 108 yen per dollar. What is the importer's gain or loss? A. $529 gain B. $529 loss C. $619 gain D. $619 loss

Q: The dollar-per-euro spot rate is 1.2 when an importer of French wines places an order. Six months later, when she takes delivery, the spot rate is 1.3 dollars per euro. If her original invoice was for 30,000 euro, what is her gain or loss due to exchange rate risk? A. $3,000 gain B. $3,000 loss C. $6,000 loss D. No gain or loss

Q: Which emerging country had the highest percentage growth in market capitalization during the 2000-2011 period? A. Brazil B. China C. Columbia D. Turkey

Q: In the PRS country composite risk ratings, a score of ______ represents the least risky and a score of _____ represents the most risky. A. 0; 100 B. 0; 50 C. 50; 0 D. 100; 0

Q: Among emerging countries the largest equity market in 2011 was located in _____________. A. China B. India C. Brazil D. Russia

Q: You find that the exchange rate quote for the yen is 121 yen per dollar. This is an example of ________ quote. You also find that the euro is worth $1.33. This second quote is an example of _______ quote. A. a direct; an indirect B. an indirect; a direct C. a foreign; a U.S. D. a U.S.; a foreign

Q: Suppose a U.S. investor wants to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest, and the current exchange rate is $1.40/₤.After 1 year, the exchange rate is $1.50/₤ and the share price is ₤45. How much of your dollar-denominated return is due to the currency change? A. 10%B. 6.43%C. 4.34%D. 2.12%

Q: Suppose a U.S. investor wants to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest, and the current exchange rate is $1.40/₤. After 1 year, the exchange rate is $1.60/₤ and the share price is ₤55. What is the dollar-denominated return? A. 25.7% B. 16% C. 14.3% D. 9.3%

Q: Suppose a U.S. investor wants to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest, and the current exchange rate is $1.40/₤. After 1 year, the exchange rate is unchanged and the share price is ₤55. What is the pound-denominated return? A. 14% B. 10% C. 9.3% D. 7.1%

Q: Suppose a U.S. investor wants to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest, and the current exchange rate is $1.40/₤. After 1 year, the exchange rate is unchanged and the share price is ₤55. What is the dollar-denominated return? A. 14% B. 10% C. 9.3% D. 7.1%

Q: Suppose a U.S. investor wants to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest, and the current exchange rate is $1.40/₤. How many shares can the investor purchase? A. 140 B. 100 C. 71.43 D. None of these options

Q: Real U.S. interest rates move above Japanese interest rates. If you believe that Japanese interest rates won't move and that interest rate parity will hold, then ____________. A. the yen-per-dollar exchange rate should rise B. the dollar-per-yen exchange rate should rise C. the exchange rate should stay the same if parity holds D. The answer cannot be determined from the information given.

Q: You are a U.S. investor who purchased British securities for 3,500 pounds 1 year ago when the British pound cost $1.35. No dividends were paid on the British securities in the past year. Your total return based on U.S. dollars was __________ if the value of the securities is now 4,200 pounds and the pound is worth $1.15. A. -3.8% B. 2.2% C. 5.6% D. 15%

Q: WEBS are _____________. A. mutual funds marketed internationally on the Internet B. synthetic domestic stock indexes C. equity indexes that replicate the price and yield performance of foreign stock portfolios D. single stock investments in a foreign security

Q: Inclusion of international equities in a U.S. investor's portfolio has historically produced ___________________. A. a substantially reduced portfolio variance B. a slightly reduced portfolio variance C. a substantially poorer portfolio variance D. a slightly poorer portfolio variance

Q: Assume there is a fixed exchange rate between the Canadian and U.S. dollars. The expected return and standard deviation of return on the U.S. stock market are 10% and 15%, respectively. The expected return and standard deviation of return on the Canadian stock market are 12% and 16%, respectively. The covariance of returns between the U.S. and Canadian stock markets is .012. 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 on your portfolio would be __________. A. 10.96% B. 12.25% C. 13.42% D. 15.5%

Q: Assume there is a fixed exchange rate between the Canadian and U.S. dollars. The expected return and standard deviation of return on the U.S. stock market are 13% and 15%, respectively. The expected return and standard deviation of return on the Canadian stock market are 12% and 16%, respectively. The covariance of returns between the U.S. and Canadian stock markets is 1.2%. 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 __________. A. 12% B. 12.5% C. 14% D. 15.5%

Q: The yield on a 1-year bill in the United Kingdom is 6%, and the present exchange rate is 1 pound = US$2. If you expect the exchange rate to be 1 pound = US$1.95 a year from now, the return a U.S. investor can expect to earn by investing in U.K. bills is approximately __________. A. -3%B. 3%C. 3.35%D. 8.72%

Q: The present exchange rate is C$1 = US$.77. The 1-year futures rate is C$1 = US$.73. The yield on a 1-year U.S. bill is 4%. A yield of __________ on a 1-year Canadian bill will make investors indifferent between investing in the U.S. bill and the Canadian bill. A. 9.7% B. 2.9% C. 2.8% D. 2%

Q: The risk-free interest rate in the United States is 8%, while the risk-free interest rate in the United Kingdom is 15%. If the 1-year futures price on the British pound is $2.40, the spot market value of the British pound today should be __________. A. $1.93 B. $2.22 C. $2.56 D. $2.76

Q: The risk-free interest rate in the United States is 4%, while the risk-free interest rate in the United Kingdom is 9%. If the British pound is worth $2 in the spot market, a 1-year futures rate on the British pound should be worth __________. A. $1.83 B. $1.91 C. $2.08 D. $2.18

Q: Suppose the 1-year risk-free rate of return in the United States is 5% and the 1-year risk-free rate of return in Britain is 8%. The current exchange rate is $1 = ₤.50. A 1-year future exchange rate of __________ would make a U.S. investor indifferent between investing in the U.S. security and investing in the British security. A. ₤.5150 B. ₤.5142 C. ₤.5123 D. ₤.4859

Q: The quoted interest rate on a 3-month Canadian security is 8%. The current exchange rate is C$1 = US$.68. The 3-month forward rate is C$1 = US$.70. The APR (denominated in US$) that a U.S. investor can earn by investing in the Canadian security is __________. A. 5% B. 7.25% C. 20% D. 22.43%

Q: Suppose the 6-month risk-free rate of return in the United States is 5%. The current exchange rate is 1 pound = US$2.05. The 6-month forward rate is 1 pound = US$2. The minimum yield on a 6-month risk-free security in Britain that would induce a U.S. investor to invest in the British security is ________. A. 5.06% B. 6.74% C. 8.48% D. 10.13%

Q: According to the International Country Risk Guide in 2011, which of the following countries was the riskiest according to the current composite risk rating? A. Japan B. United States C. China D. India

Q: You invest in various broadly diversified international mutual funds as well as your U.S. portfolio. The one risk you probably don't have to worry about affecting your returns is __________. A. business-cycle risk B. beta risk C. inflation risk D. currency risk

Q: A fund has assets denominated in euros and liabilities in yen due in 6 months. The 6-month forward rate for the euro is $1.36 per euro, and the 6-month forward rate for the yen is 121 yen per dollar. The 6-month forward rate for the euro versus the yen should be ________ per euro. A. 88.97 B. 145.34 C. 154.67 D. 164.56

Q: A U.S. insurance firm must pay 75,000 in 6 months. The spot exchange rate is $1.32 per euro, and in 6 months the exchange rate is expected to be $1.35. The 6-month forward rate is currently $1.36 per euro. If the insurer's goal is to limit its risk, should the insurer hedge this transaction? If so how? A. The insurer need not hedge because the expected exchange rate move will be favorable. B. The insurer should hedge by buying the euro forward even though this will cost more than the expected cost of not hedging. C. The insurer should hedge by selling the euro forward because this will cost less than the expected cost of not hedging. D. The insurer should hedge by buying the euro forward even though this will cost less than the expected cost of not hedging.

Q: The annual inflation rate is ______ risk variable. A. a firm-specific B. a political C. a financial D. an economic

Q: A U.S. hedge fund owns Swiss franc bonds. The fund manager believes that if Swiss interest rates rise relative to U.S. interest rates, the value of the franc will rise. To limit the risk to the fund's dollar return, the fund manager should __________. A. sell the Swiss franc bonds now B. sell the Swiss franc forward C. probably do nothing because the franc move will offset the lower bond price D. enter into an interest rate swap to pay variable and receive fixed

Q: Corruption is _________ risk variable. A. a firm-specific B. a political C. a financial D. an economic

Q: Investor portfolios are notoriously overweighted in home-country stocks. This is commonly called ________. A. local fat B. nativism C. home-country bias D. misleading representation

Q: In 2010, the ___ countries with the largest capitalization of equities made up approximately 60% of the world equity portfolio. A. 2 B. 4 C. 5 D. 12

Q: The correlation coefficient between the U.S. stock market index and stock market indexes of major countries is __________. A. between -1 and -.5 B. between -.50 and 0 C. between 0 and .5 D. between .5 and 1

Q: Which stock market has the largest weight in the EAFE index? A. Japan B. Germany C. United Kingdom D. Australia

Q: Passive investors with well-diversified international portfolios _________. A. can safely ignore all political risk in emerging markets B. can expect very large diversification gains from their international investing C. do not need to be concerned with hedging exposure to foreign currencies D. can expect returns to be better than the EAFE on a consistent basis

Q: It appears from empirical work that exchange rate risk ____________. A. has been declining for individual investments in recent years B. is mostly diversifiable C. is mostly systematic risk D. is unimportant for an investment in a single foreign country

Q: Research indicates that exchange risk of the major currencies has been _________ so far in this century. A. relatively high B. relatively low C. declining slightly D. declining rapidly

Q: The proper formula for interest rate parity is ___________. A. [1 + rf(foreign)]/[1 + rf(US)] = F1/E0 B. [1 + rf(US)]/[1 + rf(foreign)] = E0/F1 C. [1 + rf(US)]/[1 + rf(foreign)] = F0/E0 D. [1 + rf(foreign)]/[1 + rf(foreign)] = F0/E1

Q: The four largest economies in the world in 2010 were ____________. A. United States, India, China, and Japan B. United States, China, Canada, and Japan C. United States, China, Japan, and Germany D. China, United Kingdom, Canada, and United States

Q: Suppose that U.S. equity markets represent about 35% of total global equity markets and that the typical U.S. investor has about 95% of her portfolio invested only in U.S. equities. This is an example of _________. A. home-country bias B. excessive diversification C. active management D. passive management

Q: The __________ index is a widely used index of non-U.S. stocks. A. CBOE B. Dow Jones C. EAFE D. Lehman Index

Q: Which one of the following country risks includes the possibility of expropriation of assets, changes in tax policy, and restrictions on foreign exchange transactions? A. Default risk B. Foreign exchange risk C. Market risk D. Political risk

Q: EAFE stands for _______. A. Equity And Foreign Exchange B. European, Australian, Far East C. European, Asian, Foreign Exchange D. European, American, Far East

Q: If the direct quote for the exchange rate for the U.S. dollar versus the Canadian dollar is .98, what is the indirect quote? A. 1.98 B. 1.02 C. .02 D. 1.05

Q: According to a regression of GDP on market capitalization in 2010, virtually all developed countries had _______ per capita GDP than (as) predicted by the regression. A. higher B. lower C. the same D. sometimes lower and sometimes higher

Q: The 32 "developed" countries with the largest equity capitalization made up about _____ of the world GDP in 2011. A. 22% B. 44% C. 68% D. 85%

Q: ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of .20. Its earnings this year will be $3 per share. Investors expect a 12% rate of return on the stock. What price do you expect ART shares to sell for in 4 years? A. $53.96 B. $44.95 C. $41.68 D. $39.76

Q: ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of .20. Its earnings this year will be $3 per share. Investors expect a 12% rate of return on the stock. What is the present value of growth opportunities for ART? A. $8.57 B. $9.29 C. $14.29 D. $16.29

Q: ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of .20. Its earnings this year will be $3 per share. Investors expect a 12% rate of return on the stock. At what P/E ratio would you expect ART to sell? A. 8.33 B. 11.43 C. 14.29 D. 15.25

Q: ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of .20. Its earnings this year will be $3 per share. Investors expect a 12% rate of return on the stock.At what price would you expect ART to sell? A. $25B. $34.29C. $42.86D. $45.67

Q: A firm has a stock price of $54.75 per share. The firm's earnings are $75 million, and the firm has 20 million shares outstanding. The firm has an ROE of 15% and a plowback of 65%. What is the firm's PEG ratio? A. 1.5 B. 1.25 C. 1.1 D. 1

Q: A firm increases its dividend plowback ratio. All else equal, you know that _____________. A. earnings growth will increase and the stock's P/E will increase B. earnings growth will decrease and the stock's P/E will increase C. earnings growth will increase and the stock's P/E will decrease D. earnings growth will increase and the stock's P/E may or may not increase

Q: A stock is priced at $45 per share. The stock has earnings per share of $3 and a market capitalization rate of 14%. What is the stock's PVGO? A. $23.57 B. $15 C. $19.78 D. $21.34

Q: Transportation stocks currently provide an expected rate of return of 15%. TTT, a large transportation company, will pay a year-end dividend of $3 per share. If the stock is selling at $60 per share, what must be the market's expectation of the constant-growth rate of TTT dividends? A. 5% B. 10% C. 20% D. None of these options

Q: A common stock pays an annual dividend per share of $1.80. The risk-free rate is 5%, and the risk premium for this stock is 4%. If the annual dividend is expected to remain at $1.80 per share, what is the value of the stock? A. $17.78 B. $20 C. $40 D. None of these options

Q: A firm has an earnings retention ratio of 40%. The stock has a market capitalization rate of 15% and an ROE of 18%. What is the stock's P/E ratio? A. 12.82 B. 7.69 C. 8.33 D. 9.46

Q: A firm has PVGO of 0 and a market capitalization rate of 12%. What is the firm's P/E ratio? A. 12 B. 8.33 C. 10.25 D. 18.55

Q: Sanders, Inc., paid a $4 dividend per share last year and is expected to continue to pay out 60% of its earnings as dividends for the foreseeable future. If the firm is expected to generate a 13% return on equity in the future, and if you require a 15% return on the stock, the value of the stock is _________. A. $26.67 B. $35.19 C. $42.94 D. $59.89

Q: Everything else equal, which variable is negatively related to the intrinsic value of a company? A. D1 B. D0 C. g D. k

Q: A company with an expected earnings growth rate which is greater than that of the typical company in the same industry most likely has _________________. A. a dividend yield which is greater than that of the typical company B. a dividend yield which is less than that of the typical company C. less risk than the typical company D. less sensitivity to market trends than the typical company

Q: Assuming all other factors remain unchanged, __________ would increase a firm's price-earnings ratio. A. an increase in the dividend payout ratio B. a reduction in investor risk aversion C. an expected increase in the level of inflation D. an increase in the yield on Treasury bills