Chapter 10

Question 1

Define market capitalization?

Answer 1

Outstanding shares x market price

Question 2

The two finance and capital market theories are known as?

Answer 2

1. Capital asset pricing model
2. Modern portfolio theory

Question 3

Successful investing usually requires the availability and use of passive benchmarks to help gauge a portfolio’s performance. To be considered appropriate, a benchmark should have the following characteristics:

Answer 3

1. Constructed in advance of analysis
2. A well-defined and transparent methodology for what securities are included in the benchmark, as well as the weighting
3. Timely data is available to the public
4. The benchmark is valued frequently with a long valuation history
5. Changes to the construct of the index occur infrequently
6. The benchmark has investable constituents; in other words, it is actually possible to invest in the securities contained within the benchmark

Question 4

What are the two most popular benchmarks for international equities?

Answer 4

1. The MSCI Inc
2. S&P Dow Jones Indices

Question 5

What does free-float market capitalization mean?

Answer 5

Based on the current number of shares at are really available in the market, it does not include restricted shares

Question 6

What are the three main advantages of investing in international markets?

Answer 6

1. Diversification
2. Exposure to emerging markets
3. Exposure to unique companies

Question 7

What are some of the primary disadvantages of investing in international markets?

Answer 7

1. Higher expenses
2. Liquidity risks
3. Legal and accounting issues
4. Shareholder communication
5. Foreign exchange risk
6. Sovereign risk
7. Tax risk

Question 8

What are the three ways investors can get access to international investments?

Answer 8

1. Direct investing
2. Mutual funds
3. ETFs

Question 9

What are some types of international ETFs?

Answer 9

1. Broad-based
2. Regional
3. Individual country
4. Foreign-style
5. Foreign dividend
6. Foreign currency
7. Commodity-themed
8. International bond

Question 10

What are the skills necessary needed for successful international investing?

Answer 10

1. Knowledge of asset allocation tools
2. Sensitivity to additional costs and expenses
3. Familiarity with foreign trading and settlement conventions
4. Sensitivity to different volatility levels of international capital markets

Question 11

What is Target date fund?