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Exam 25: International Diversification

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Question 1

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When an investor adds international stocks to his or her Canadian stock portfolio,

A) it will raise his or her risk relative to the risk he or she would face just holding U.S.stocks.
B) he or she can reduce the risk of his or her portfolio.
C) he or she will increase his or her expected return but must also take on more risk.
D) it will have no impact on either the risk or the return of his or her portfolio.

E) All of the above
F) B) and C)

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Question 2

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As exchange rates change, they

A) change the relative purchasing power between countries.
B) can affect imports and exports between countries.
C) will affect the flow of funds between countries.
D) All of the options are true.

E) A) and D)
F) All of the above

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Question 3

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Suppose the 1-year risk-free rate of return in Canada.is 6%.The current exchange rate is 1 pound = Cad $1.62.The 1-year forward rate is 1 pound = $1.53.What is the minimum yield on a 1-year risk-free security in Britain that would induce a Canadian investor to invest in the British security?

You are a Canadian investor who purchased British securities for 4,000 pounds one year ago when the British pound cost $1.50.No dividends were paid on the British securities in the past year.Your total return based on Canadian dollars was __________ if the value of the securities is now 4,400 pounds and the pound is worth $1.62.

Suppose the 1-year risk-free rate of return in Canada is 5%.The current exchange rate is 1 pound = Cad $1.60.The 1-year forward rate is 1 pound = $1.57.What is the minimum yield on a 1-year risk-free security in Britain that would induce a Canadian investor to invest in the British security?

"ADRs" stands for ___________, and "WEBS" stands for ____________.

The straightforward generalization of the simple CAPM to international stocks is problematic because

Using local currency returns, the S&P 500 has the highest correlation with

The present exchange rate is C$ = U.S.$0.78.The 1-year future rate is C$ = U.S.$0.75.The yield on a 1-year U.S.bill is 5%.A yield of __________ on a 1-year Canadian bill will make investor indifferent between investing in the U.S.bill and the Canadian bill.

Over the period 2011-2016, most correlations between the U.S.stock index and stock-index portfolios of other countries were

The __________ index is a widely used index of non-U.S.stocks.

When Country A's currency strengthens against Country B's, citizens of Country A will

According to PRS, in 2015, which country had the highest composite risk rating on a scale of 0 (most risky) to 100 (least risky) ?

Canadian investors

International investing

The yield on a 1-year bill in the U.K.is 8%, and the present exchange rate is 1 pound = Cad.$1.60.If you expect the exchange rate to be 1 pound = Cadf.$1.50 a year from now, the return a Canadian investor can expect to earn by investing in U.K.bills is

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 7%.The current exchange rate is 1 pound = Cad.$1.65.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.

Shares of several foreign firms are traded in the U.S.markets in the form of

You are a Canadian investor who purchased British securities for 2,000 pounds, one year ago when the British pound cost $1.50.No dividends were paid on the British securities in the past year.Your total return based on Canadian dollars was __________ if the value of the securities is now 2,400 pounds and the pound is worth $1.60.

You are a Canadian investor who purchased British securities for 2,200 pounds one year ago when the British pound cost $1.50.No dividends were paid on the British securities in the past year.Your total return based on Canadian dollars was __________ if the value of the securities is now 2,560 pounds and the pound is worth $1.60.