cHAPTER 15

Question 1

sensitivity of returns on a security to world market movements.

Answer 1

“world beta”

Question 2

The less correlated the securities in a portfolio

Answer 2

A. the lower the portfolio risk.

Question 3

Foreign equities as a proportion of U.S. investors’ portfolio wealth rose from about 1
percent in the early 1980s to about ____________ by 2007.

Answer 3

23%

Question 4

You will get more diversification

Answer 4

B. across countries than across industries.

Question 5

Security returns are much less correlated across countries than within a county.

Answer 5

True

Question 6

A fully diversified U.S. portfolio is about

Answer 6

27%

Question 7

A. a “risk-adjusted” performance measure.

B. the excess return (above and beyond the risk-free interest rate) per standard deviation risk.

Answer 7

The “Sharpe performance measure” (SHP)

Question 8

Recent studies show that when investors control exchange risk by using currency forward contracts to hedge

Answer 8

B. international bond portfolios dominate domestic stock portfolios in terms of risk-return
efficiency.

Question 9

Advantages of investing in U.S.-based international mutual funds include

Answer 9

A. lower transactions costs relative to direct investing.
B. circumvention of many legal and institution barriers to direct portfolio investment in many
foreign markets.
C. professional management, potentially expertise in security selection, definitely recordkeeping.
D. all of the above

Question 10

The record of investing in U.S.-based international mutual funds

Answer 10

shows that most funds have a beta much less than one.

Question 11

The majority of ADRS

Answer 11

A. are from such developed countries as Australia and Japan.

Question 12

American Depository Receipt (ADRs) represent foreign stocks

Answer 12

denominated in U.S. dollars that trade on a U.S. stock exchange