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Exam 15: International Portfolio Investment

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Question 31

Multiple Choice

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The degree of home bias varies across investors

A) wealthier, more experienced, and sophisticated investors are less likely to exhibit home bias.
B) wealthier, more experienced, and sophisticated investors are more likely to exhibit home bias.
C) wealthier, more experienced, and sophisticated investors are less likely to invest in foreign securities.
D) both b and c

E) B) and C)
F) All of the above

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Question 32

Multiple Choice

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When a country is more remote,with an uncommon language

A) domestic investors tend to invest more in country's market and less abroad.
B) foreign investors tend to invest less in country's market.
C) domestic investors tend to invest more in country's market.
D) both a and b

E) B) and C)
F) A) and B)

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Question 33

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Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock.One year after investment,the stock pays a £1 dividend,and sells for £54 the exchange rate has changed from €1.25 per pound to €1.30 per pound,although he sold £10,000 forward at the forward rate of €1.28 per pound.

The stock market of country A has an expected return of 8%, and standard deviation of expected return of 5%. The stock market of country B has an expected return of 16% and standard deviation of expected return of 10%. -Find the Global Minimum Variance Portfolio. With a correlation coefficient of negative one we know that the efficient

Assume that you have invested $100,000 in British equities.When purchased,the stock's price and the exchange rate were £50 and £0.50/$1.00 respectively.At selling time,one year after purchase,they were £60 and £0.60/$1.00.If the investor had sold £50,000 forward at the forward exchange rate of £0.55/$1.00,the dollar rate of return would be:

Hedge funds

The "world beta" measures the

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

With regard to the OIP,

Explanations for Home Bias include

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock.One year after investment,the stock pays a £1 dividend,and sells for £54 the exchange rate has changed from €1.25 per pound to €1.30 per pound,although he sold £8,800 forward at the forward rate of €1.28 per pound. Spot exchange rates at the start and end of the year are shown in the table. $\begin{array} { | l | l | l | l | } \hline & \text { Spot Rate } \mathrm { T } = 0 & \text { Spot Rate } \mathrm { T } = 1 & \text { Forward rate } \\\hline \text { Euro } & \$ 1.60 & \$ 1.60 & \$ 1.625 \\\hline \text { pound } & \$ 2.00 & \$ 2.08 & \$ 2.08 \\\hline\end{array}$

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock.One year after investment,the stock has no value since the firm is bankrupt.Meanwhile the exchange rate has changed from €1.25 per pound to €1.30 per pound,and he sold £8,000 forward at the forward rate of €1.28 per pound.

A 5%-annual coupon British has a par value of £1,000,matures in five years,and has a yield to maturity of 4%.The current exchange rate is $2.00 = £1.00 and inflation is forecast at 3% in the U.S.and 2% in the U.K.per year for the next five years.If a dollar-based investor used forward contracts to redenominate this bond into dollars,what would be his rate of return?

A zero-coupon French bond promises to pay €100,000 in five years.The current exchange rate is $1.50 = €1.00 and inflation is forecast at 3% in the U.S.and 2% in the euro zone per year for the next five years.The appropriate discount rate for a bond of this risk would be 10% if it paid in dollars.What is the appropriate price of the bond?

Consider a simple exchange risk hedging strategy in which the U.S.dollar based investor sells the expected foreign currency proceeds of a risky investment forward.Although the expected foreign investment proceeds will be converted into U.S.dollars at the known forward exchange rate under this strategy,the unexpected foreign investment proceeds

With regard to the past price performance of U.S.-based closed end country funds,

Compared with bond markets

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock on margin with only 40% down and 60% borrowed.The stock pays a £0.30 quarterly dividend,and after one year the investment sells for £54 the exchange rate has changed from €1.25 per pound to €1.30 per pound.The interest on the margin loan is 1% per year.The margin loan is denominated in pounds.

The record of investing in U.S.-based MNCs

A zero-coupon British bond promises to pay £100,000 in five years.The current exchange rate is $2.00 = £1.00 and inflation is forecast at 3% in the U.S.and 2% in the U.K.per year for the next five years.The appropriate discount rate for a bond of this risk would be 10% if it paid in dollars.What is the appropriate price of the bond?