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Investments, 4th Canadian Edition, 4/e

Zvi Bodie, Boston University School of Management
Alex Kane, University of California, San Diego
Alan Marcus, Boston College
Stylianos Perrakis, Concordia University
Peter Ryan, University of Ottawa

International Investing

Multiple Choice Quiz

Prepared by William Lim, University of New Brunswick.


1	Shares of several foreign firms are traded in the U. S. markets in the form of
		A)	ECUs
		B)	ADRs
		C)	single-country funds
		D)	all of the above
		E)	none of the above


2	The performance of an internationally diversified portfolio may be affected by
		A)	currency selection
		B)	country selection
		C)	stock selection
		D)	all of the above
		E)	none of the above


3	Solnik and de Freitas tested the arbitrage pricing model on international stocks and used
		A)	currency movements as a factor
		B)	the world stock index as a factor
		C)	domestic stock indices as a factor
		D)	all of the above as factors
		E)	none of the above as factors


4	The straightforward generalization of the simple CAPM to international stocks is problematic because
		A)	taxes, transaction costs and capital barriers across countries make it difficult for investor to hold a world index portfolio
		B)	investors in different countries view exchange rate risk from the perspective of different domestic currencies
		C)	inflation risk perceptions by different investors in different countries will differ as consumption baskets differ
		D)	all of the above
		E)	none of the above.


5	The major concern that has been raised with respect to the weighting of countries within the EAFE index is
		A)	currency volatilities are not considered in the weighting.
		B)	the weights are not proportional to the asset bases of the respective countries.
		C)	inflation is not represented in the weighting.
		D)	cross-correlations are not considered in the weighting.
		E)	none of the above


6	Exchange rate risk
		A)	a. results from changes in the exchange rates in the currencies of the investor and the country in which the investment is made.
		B)	b. cannot be eliminated.
		C)	c. can be hedged by using a forward or futures contract in foreign exchange.
		D)	a. and b.
		E)	a. and c.


7	Foreign index funds such as WEBS may be more useful as diversification tools than closed-end funds or ADRS because
		A)	they are well-diversified and continuously priced.
		B)	they have similar expense ratios to open-end country funds.
		C)	they sell at a discount to net asset value.
		D)	they are actively managed.
		E)	all of the above.


8	When market segmentation exists, the benefits of international diversification
		A)	are negligible.
		B)	are decreased.
		C)	are increased.
		D)	remain the same.
		E)	none of the above.


9	When an investor adds international stocks to her portfolio
		A)	it will raise her risk relative to the risk she would face just holding Canadian stocks.
		B)	she needs to seek professional management because she doesn't have access to international stocks on her own.
		C)	she will increase her expected return, but must also take on more risk.
		D)	it will have no significant impact on either the risk or the return of her portfolio.
		E)	she can reduce its risk relative to the risk she would face just holding Canadian stocks.


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

2003 McGraw-Hill Higher Education
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