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Q:
Indirect international investment effectively eliminates problems with:
A.taxation by foreign governments.
B.administration of foreign securities problems.
C.different cultures and reporting standards.
D.All of the above
Q:
Specialists in international securities associated with financial management firms provide their expertise primarily to:
A.wealthy investors.
B.institutional investors.
C.managers of mutual funds.
D.More than one of the above
Q:
Which of the following statements about mutual funds and closed-end investment companies investing in foreign companies is true?
A.The fund managers are specialists at handling various foreign investment problems
B.It is difficult to track the stock prices of foreign equity investments
C.Professional management provides an opportunity for superior returns compared to the foreign market
D.All of the above are true
Q:
Methods of indirect international investment include all of the following except:
A.buying shares of a multinational corporation.
B.investing in mutual or closed-end worldwide investment funds.
C.hiring a specialist in foreign investments.
D.All of the above are methods
Q:
Direct international investment without the numerous associated administrative problems can be achieved by purchasing shares:
A.of foreign firms which trade on the New York Stock Exchange or NASDAQ.
B.in a mutual fund.
C.in an exchange-traded fund.
D.of multinational corporations.
Q:
Which of the following statements about the information available on publicly traded foreign firms is NOT true?
A.At least the accounting standards are the same for U.S. and international companies
B.Comparative industry data is generally not available
C.If you purchase a foreign firm directly on a foreign market, you will receive your annual reports in the language of the country, which most likely will not be English
D.The information is less rigorously regulated than in the United States
Q:
Administrative problems, such as different settlement procedures for various markets, can best be avoided by:
A.becoming thoroughly comfortable with each country's procedures.
B.using a local broker.
C.investing in a mutual fund.
D.None of the above
Q:
The main problem associated with the taxation of foreign investors is:
A.the withholding rate is frequently 40% higher than that of the United States.
B.dividends from some securities are taxed twice, once by the foreign government, and once by the United States government.
C.the inconvenience of having to apply for a foreign tax credit on your U.S. income tax return and keeping track of the information over the tax year.
D.None of the above
Q:
Political risk can best be effectively reduced or eliminated:
A.by investing only in European countries.
B.through sufficient international diversification.
C.by investing only in countries friendly to the United States.
D.All of the above
Q:
There may be an opportunity for profit in a politically unstable country if:
A.that country's domestic investors overreact in response to political changes.
B.the regime in power is openly courting big business.
C.the leaders of that country decide to cancel all foreign debt obligations.
D.More than one of the above
Q:
Which of the following is NOT a valid reason for discounting the importance of stable foreign currency in evaluating international investment alternatives?
A.A devaluation in one country is usually offset by an increase in value in another
B.The overall effect of a devaluation in the economy of the country is insignificant
C.Risk exposure can be hedged through foreign exchange contracts or foreign currency options
D.All of the above are valid reasons
Q:
An investment in Mexico produces a return of 80%. However, the Mexican peso has just declined by 45%, relative to the dollar. The previous value of the peso was $.0066. The adjusted return on the investment is a(n):
A.42% gain.
B.8.5% loss.
C.1.0% loss.
D.None of the above
Q:
An investor who wishes to achieve high returns and low risk exposure through international diversification would probably look for:
A.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.
B.stable currencies relative to the dollar, total market value potential higher than the United States, and high correlation of returns.
C.a compound rate of return equal to that of the United States and a correlation coefficient close to that of the United States.
D.None of the above
Q:
Which of the following might be a reason for higher return potential in certain foreign stock markets than in U.S. markets?
A.Some small economies have more growth potential because they are starting from a smaller base of GDP
B.GDP is growing at a faster rate in some countries than in the United States
C.Many of these foreign economies have older populations that spend a higher percentage of their income than the U.S. population
D.A and B are valid reasons
Q:
The investor can maximize risk reduction benefits by combining United States securities with those of countries which are ________.
A.oil-exporting nations.
B.negatively or least positively correlated with the United States.
C.correlated with the United States.
D.None of the above
Q:
The second largest equity market in the world at the end of 2005 was that of:
A.Japan.
B.the United Kingdom.
C.the United States.
D.Germany.
Q:
Between year-end 2002 and 2005, the value of the United States equity markets as a percentage of the total world equity markets has:
A.increased 100%.
B.increased from 35% to 42% of the total developed market.
C.decreased from 53% to 33% of the total developed market.
D.decreased slightly, from about 51% to 48% of total developed market.
Q:
Investing directly in the international equities markets refers to buying shares:
A.of multinational corporations.
B.of foreign companies.
C.of internationally invested mutual funds.
D.More than one of the above
Q:
Correlations between U.S. returns and foreign stock returns appear to remain fairly stable from period to period.
Q:
Emerging markets seem to have fairly consistent valuation standards and ratios.
Q:
Correlations of foreign stock market movements to U.S. stock market movements show that the period from 1997 to 2002 had higher correlations than in the past.
Q:
The data show that several markets such as the United States and Britain continually outperform the other developed markets such as Canada, Switzerland, and Japan.
Q:
Emerging markets often have market structures similar to those in the developed world and trade their securities in a continuous auction market.
Q:
The currency crisis in South Asia caused a big decrease in the value of South Asian countries' market values between 1996 and 2002.
Q:
At the end of 2005, North America, Asia Pacific, and Europe each accounted for one-third of the world's markets capitalization.
Q:
An "emerging market" is defined as a market where the country has a small capital market relative to the industrialized world.
Q:
Even though Korea and China have markets bigger than some markets in developed countries, they are considered to be emerging markets because they have low per-capita gross domestic product.
Q:
Since the beginning of the 1990s, we have seen major growth in "emerging" markets, such as Chile, Mexico, Poland, and the Czech Republic.
Q:
ADRs (American Depository Receipts) represent an ownership interest in a foreign company's common stock.
Q:
Generally, foreign markets are more liquid and efficient than U.S. capital markets.
Q:
Currency fluctuations and rates of return are the only really important things to consider when investing internationally.
Q:
The correlation coefficient measures the movement of one series of data to another series of data over the same time period.
Q:
One possible way of achieving international diversification in a portfolio is to invest in foreign firms which trade on United States markets or through ADRs.
Q:
The best possible way of achieving international diversification is to invest in United States companies having a large share of their business coming from foreign investment.
Q:
The market capitalization of the 20 largest U.S. companies would rank ahead of any emerging market's capitalization, including China by 2009.
Q:
Investing in an international mutual fund does not help the investor avoid the administrative problems one would encounter if investing directly in foreign securities.
Q:
Brazil, China, and India have had the biggest increase in market capitalization of all the emerging market countries
Q:
Risk exposure to foreign currency changes can be hedged through foreign exchange contracts or foreign currency options.
Q:
The Securities Exchange Commission does not allow mutual funds to own foreign securities in their portfolios.
Q:
American depository receipts allow foreign stocks to be traded in the United States markets very similarly to U.S. stocks.
Q:
Information on publicly traded foreign securities is not as regulated or as available as it is on United States securities.
Q:
If the emerging markets were taken as a group at the end of 2005, their total market capitalization would rank them second behind the United States.
Q:
Political risk can best be effectively reduced or eliminated by investing only in companies of European countries.
Q:
International diversification will provide low risk when the investor finds international securities having a compound rate of return equal to that of the United States and a correlation coefficient close to that of the United States portfolio.
Q:
One of the biggest risks when investing in a foreign security market is the risk of currency exchange fluctuations.
Q:
By combining foreign securities with domestic securities, investors increase their portfolio risk because foreign securities are more volatile than United States securities.
Q:
In the developing world, Germany has the second largest equity market after the United States.
Q:
The United States equity markets accounted for over 50% of the value of the world equity market at the end of 2009.
Q:
Countries are divided into developed and emerging markets based on the market capitalization of their stock market.
Q:
U.S. multinational corporations are highly correlated with United States financial markets and therefore do not reduce portfolio risk to the same extent as investing in foreign corporations.
Q:
Most major foreign firms listed on the New York Stock Exchange, such as Canada Pacific Railway, trade their stocks directly on the NYSE rather than using ADRs.
Q:
As a general rule, transaction costs are lower in foreign markets than in the United States.
Q:
At the peak of the stock market bubble in 1999, the value of the developed world's stock market was $33 trillion. By 2002, the value had declined to less than $21 trillion. By year-end 2005, after several years of worldwide economic growth, the developed markets reached $36.5 trillion.
Q:
Foreign exchange risk is not a major concern to international investors because there have been fewer wide swings in currency values in recent years.
Q:
Less developed countries may provide even greater risk returns in a portfolio than developed countries.
Q:
Due to the lessened risk exposure through effective international portfolio diversification, the rate of return tends to be somewhat lower than on portfolios composed entirely of United States securities.
Q:
From 1976-2009 Japan had the lowest equity market returns 13 out of 34 years.
Q:
The main advantage of international investment is that foreign markets may be negatively correlated with U.S. and other foreign markets.
Q:
Assume you buy a 20-year, $1,000 par value zero-coupon bond that provides a 12% yield to maturity. Almost immediately after you buy the bond, yields decrease to 9%. What will be the percentage gain on the investment?
Q:
Compute the duration for a bond with an 8% coupon rate, maturing in five years. A discount rate of 10% should be applied.
Q:
You have invested $1,000 in a 12% coupon bond that matures in three years. You are investing the interest income in a fund earning 8%. At the end of three years, what will be your portfolio sum?A.$1,120.00B.$1,249.60C.$1,360.00D.$1,389.57E.$1,540.73
Q:
Compute the duration for the data in this problem using a discount rate of 12%. A.3.00 years
B.2.95 years
C.2.85 years
D.2.75 years
E.2.65 years
Q:
A terminal wealth table generates the ending value of the investment at the end of the year, assuming that the bond:
A.has a maturity date corresponding to that year.
B.has a maturity date corresponding to the next year.
C.is a zero-coupon bond.
D.None of the above
Q:
For all bonds of equal risk, the type of bond that had the greatest duration, and therefore the greatest price sensitivity, is:
A.Treasury bonds.
B.zero-coupon bonds.
C.corporate bonds.
D.long-term government bonds.
Q:
Duration is:
A.positively correlated with interest rates and coupon rates but moves in the opposite direction of maturity.
B.negatively correlated with maturity but moves in the same direction as market rates of interest and coupon rates.
C.positively correlated with maturity but moves in the opposite direction of market rates of interest and coupon rates.
D.None of the above
Q:
Duration is influenced by everything except:
A.maturity.
B.market rate of interest.
C.coupon rate on the bond.
D.the issuer of the bond.
Q:
Duration represents the weighted average life of a bond where the weights are based on the:
A.future value of the individual cash flows relative to the present value of the total cash flows.
B.present value of the individual cash flows relative to the future value of the individual cash flows.
C.present value of the individual cash flows relative to the present value of the total individual cash flows.
D.future value of the individual cash flows relative to the future value of the individual cash flows.
Q:
Under terminal wealth analysis, the greater the period to maturity,
A.the greater the shift in interest rates.
B.the greater the effect of a decrease in interest rates.
C.the greater the effect of any shift in interest rates.
D.None of the above
Q:
Under which of the following circumstances would terminal wealth analysis NOT be relevant?
A.When the bond is sold prior to maturity
B.When market interest rates rise above the coupon rate
C.Terminal wealth analysis is ALWAYS relevant
D.None of the above
Q:
The process of measuring the effect of a shift in market interest rates on the value of an investment is called:
A.duration analysis.
B.immunization.
C.terminal wealth analysis.
D.None of the above
Q:
Volatile high interest rates have directly caused more emphasis on duration analysis because:
A.investors have responded to the new environment by switching from short-term to longer-term securities.
B.prices of longer-term bonds are more sensitive to shifts in interest rates than shorter-term bonds.
C.duration analysis measures the degree of bond price sensitivity.
D.All of the above
Q:
What type of bond investor would probably be least concerned about a drop in market interest rates?
A.Individuals who spend their interest income
B.Individuals who are building a retirement portfolio
C.Pension fund managers
D.All of the above would have cause for concern
Q:
One of the major criticisms of duration analysis is:
A.the difficulty of measuring the market rate of interest.
B.the assumption that long-term and short-term interest rates move by equal amounts.
C.the assumption that long-duration bonds are more price-sensitive than short-duration bonds.
D.None of the above
Q:
When duration of a coupon paying bond is plotted against years to maturity on the X axis, the line:
A.is linear.
B.is concave.
C.is convex.
D.is linear at a 45 degree angle.
Q:
Immunization is the process of ________ to ensure an outcome.
A.measuring bond price sensitivity to interest rates
B.tying all investment decisions to a particular market interest rate
C.tying all investment decisions to a duration period
D.none of the above
Q:
Duration is used primarily as a measure of:
A.the relationship between coupon rate and bond rating.
B.bond price-sensitivity to interest rate changes.
C.the present value of investment inflows.
D.None of the above
Q:
The duration on an 8%, 25-year bond is ______ the duration on a 9%, 30-year bond.
A.greater than
B.less than
C.equal to
D.there is not enough information to tell
Q:
The highest duration and maximum price sensitivity relative to years to maturity are produced by:
A.a coupon rate equal to the market rate.
B.a low coupon rate.
C.a zero-coupon.
D.None of the above
Q:
The duration of a 20-year, $1,000 bond at a COUPON rate of 8% is _________ the duration of an identical bond at a coupon rate of 6%.
A.greater than
B.less than
C.equal to
D.there is not enough information to tell
Q:
The duration of a 40-year, $1,000 bond at a market rate of 4% is _________ the duration of an identical bond at a market rate of 6%.
A.greater than
B.less than
C.equal to
D.there is not enough information to tell