FIN 320 Week 10 Quiz – Strayer

FIN 320 Week 10 Quiz – Strayer

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Quiz 8 Chapter 19 and 20
Chapter 19: ___________________________________________________________________________
1. In 2011, U.S. securities represented ______ of the world market for equities.


A. less than 25%

B. more than two-thirds

C. between 30% and 40%

D. a consistent 50%


2. _____ has the highest market capitalization of listed corporations among developed markets.


A. The United States

B. Japan

C. The United Kingdom

D. Switzerland


3. Total capitalization of corporate equity in the United States in 2011 was about _______ trillion.


A. $13.9

B. $23.4

C. $30.2

D. $45.5


4. If you limit your investment opportunity set to only the largest six countries in the world in terms of equity capitalization as a percentage of total global equity capital, you will include about _______ of the world's equity.


A. 34%

B. 44%

C. 54%

D. 64%


5. Limiting your investments to the top six countries in the world in terms of market capitalization may make sense for _________ investor but probably does not make sense for ________ investor.


A. an active; a passive

B. a passive; an active

C. a security selection expert; a market timer

D. a fundamental; a technical


6. WEBS are ____________________.


A. investments in country-specific portfolios

B. traded exactly like mutual funds

C. identical to ADRs

D. designed to give investors foreign currency exposure to multiple countries


7. Which one of the following allows you to purchase the stock of a specific foreign company?


A. WEBS

B. MSCI

C. ADR

D. EAFE


8. Generally speaking, countries with ______ capitalization of equities ________.


A. larger; have higher GDP

B. smaller; are wealthier

C. larger; have smaller GDP

D. larger; are higher-growth countries


9. 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%


10. 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


11. 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


12. EAFE stands for _______.


A. Equity And Foreign Exchange

B. European, Australian, Far East

C. European, Asian, Foreign Exchange

D. European, American, Far East


13. 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


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


A. CBOE

B. Dow Jones

C. EAFE

D. Lehman Index


15. 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


16. 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


17. 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


18. 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


19. 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


20. 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


21. Which stock market has the largest weight in the EAFE index?


A. Japan

B. Germany

C. United Kingdom

D. Australia


22. 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


23. 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


24. 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


25. Corruption is _________ risk variable.


A. a firm-specific

B. a political

C. a financial

D. an economic


26. 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


27. The annual inflation rate is ______ risk variable.


A. a firm-specific

B. a political

C. a financial

D. an economic


28. 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.


29. 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


30. 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


31. According to the InternationalCountryRiskGuide 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


32. 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%


33. 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%


34. 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


35. 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


36. 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


37. 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%