Section I.C.

Question 1

What does a negative correlation between real rate and inflation rate mean?

Answer 1

Means the nominal rate doesn’t fully compensate investors for increase in inflation

Question 2

Has the US ever had a sovereign default?

Answer 2

Question 3

What is the “Gold Standard” in the monetary system?

Answer 3

Question 4

What are the Ramifications, benefits, and drawbacks of the “Gold Standard”?

Answer 4

Question 5

What is “Equity Premium”?

Answer 5

Question 6

What is PE10 Ratio (Shiller’s PE)?

Answer 6

also known as the “cyclically adjusted PE” (CAPE);

smoothes out fluctuations in earnings
due to the business cycle; uses earnings per share figures adjusted for inflation and averaged over 10 years as the denominator

Question 7

What is “Q-Ratio”?

Answer 7

Question 8

Answer 8

Question 9

What is the effect of Correlation?

Answer 9

Question 10

How do we reduce Portfolio Risk?

Answer 10

Question 11

What are the benefits of International Diversification?

Answer 11

Question 12

Are diversification benefits Preserved in Bear Markets?

Answer 12

Question 13

What are possible reasons for increased correlations?

Answer 13

Question 14

What do correlations do during major market corrections and times of crises?

Answer 14

Question 15

Currency Hedging Equities vs Currency Hedging bond investments?

Answer 15

Currency hedging international (e.g.,
non U.S.) equity investments is not
typically necessary or helpful
–CIMA text, page 261

Currency hedging international (e.g.,
non U.S.) bond investments may be
beneficial
–CIMA text, page 303