Chapter 19
Political risk as applied to international investing decisions includes:
changes in a country's business climate restrictions on exchange of currencies changes in tax policy potential expropriation of assets
If an active manager believes the U.S. dollar is overvalued compared to the Japanese currency, then he should increase his exposure to
yen
You purchased a share of a German firm's stock. The company did not pay out any dividends and the price of the stock rose by 15% over the year. In addition, the value of the Euro was $1.00 per Euro at the outset and it rose by 10% over the year. What was your total percentage rate of return in dollars for this investment?
26.5% Reason: Also, try the shortcut: [1+r(Ger)]x[1+%Change in Euro]
The current exchange rate on the pound is $1.60. You can invest in a risk-free British government instrument that will pay a 5% rate of return in pounds. You want to invest $500,000. To exactly hedge the exchange rate risk in this investment, you will use a forward (or futures) contract for delivery of pounds of what size?
328,125 pounds
Which attribution selection categories are appropriate for use in an international equity fund performance evaluation?
Currency selection Stock selection Country selection
True or false: Due to the risky nature of some international investments, internationally diversifying a portfolio almost always causes the average standard deviation of the portfolio to increase.
False
True or false: Investors should always hedge exchange rate risk, due to its size and significance in global portfolio returns.
False
True or false: Past realized returns are more useful estimates of expected returns than past risk measures are useful estimates of future risk.
False
True or false: The United States has the lowest risk rating in the International Country Risk Guide.
False
True or false: In 2016, both China and Venezuela were in the top 50 least risky countries.
False Reason: China was 53rd in 2016 and Venezuela was considered the most risky at 140th.
Select all that apply Economic risk as applied to international investing decisions includes:
GDP per capital, Budget balance Annual Inflation Rate.
The largest contributor to EAFE by Market Capitalization in 2018 was
Japan
True or false: The market capitalization of emerging stock markets represents around 21% of the total world market capitalization in 2017.
True
True or false: Relative to their Gross Domestic Product, emerging markets are underrepresented in global market capitalization.
True Reason: The value of emerging market stock markets would need to rise significantly to match the capitalization of developed markets relative to GDP.
Active country allocation decisions that assume market capitalization weights will eventually mimic GDP per capital weights would invest in which manner?
Underweight high per capita GDP countries Overweight low per capita GDP countries
The correlation between country performance, over time, is
increasing