1. The total dollar return on a foreign security can be decomposed into
a) dividend/interest income     b) capital gains (losses)  c) currency gains (losses)    d) all of the above   e) a and b only

2. Suppose the initial price of a French bond is FF 850, the coupon income is FF 70, the end-of-period bond price is FF 1,000, and the franc devalues by 6% against the dollar during the period. What was the bond's total dollar return during the period?
a) 8.24%   b) 18.33%  c) 25.88%   d) 27.44%   e) none of the above

3. Suppose an investor buys a Taiwanese bond with a face value of NT20,000, which is priced at NT$19,500 and bears a coupon of NT$1,700. At the end of the year, the investor sells the bond at a price of NT$18,030. During the year, the exchange rate goes from NT$1 = U.S.$0.0375 to NT$1 = U.S.$0.0425. What was the investor's U.S. dollar return on this bond?
a) 13.33%   b) 4.23%   c) -5.69%   d) 14.67%   e) none of the above

4. A Thai baht bond with a coupon of 9.5% is initially priced at its face value of Bt 1,000. At the end of one year, the bond is selling for Bt 1,050. If the initial spot rate was Bt 25 = $1, at what end- of-year exchange rate will the dollar return on the bond just equal 10%?   a) Bt 1 = $0.0384  b) Bt 1 = $0.0416  c) Bt 1 = $0.0482  d) Bt 1 = $0.0324  e) none of the above

5. Suppose an investor buys a share of Sony at a price of ¥38,720 at the start of the year. During the year, the investor receives a dividend of ¥500. At the end of the year, the price of Sony is ¥49,560. During the year, the exchange rate goes from ¥150 = $1 to ¥175 = $1. What was the investor's dollar return on Sony?
a) 29.29%   b) 10.82%   c) -3.24%   d) -8.23%   e) none of the above

6. Suppose you buy a share of Siemens at a price of DM 83. During the year, you receive a dividend of DM 2 and the DM rises by 8%. If the stock price at yearend is DM 80, what was your total dollar return for the year?
a) 10.60%   b) 6.70%  c) 9.83%   d) 8.43%   e) none of the above

7. Suppose an investor buys a share of British Petroleum at a price of £32 at the start of the year. During the year, the investor receives a dividend of £1.5. At the end of the year, the price of BP is £34. During the year, the exchange rate goes from £1 = $1.78 to £1 = $1.63. What was the investor's dollar return on BP?
a) -2.35%   b) -6.47%   c) 1.59%  d) 10.94%   e) none of the above

8. Which of the following are advantages of international investing?   a) you can invest in industries that don't exist in the United States    b) you can invest in countries with different business cycles   c) all of the above

9. International diversification provides a better risk-return trade-off than does investing solely in U.S. securities primarily because
a) many foreign industries don't exist in the U.S.   b) there are many more securities to choose from overseas
c) the economic cycles of nations are not perfectly in phase    d) all of the above    e) a and b only

11. The greatest diversification gains, according to the text, (maybe not your instructor), can be achieved by
a) adding more domestic stocks to a portfolio   b) substituting foreign stocks for some domestic stocks
c) substituting both foreign stocks and bonds for some domestic stocks and bonds
d) substituting foreign bonds for domestic stocks   e) none of the above

12. Non-U.S. companies account for ----- of the world's stock market capitalization.
a) roughly one half  b) about one-third  c) under one-third  d) ten percent

13. Assume the Hong Kong market has a correlation of .34 with the U.S. market and a standard deviation of return of 45.5%. What is the Hong Kong market's beta relative to the U.S. market? The standard deviation of return for the U.S. market is 18.2%.
a) 0.85%   b) 1.34%   c) 0.73%   d) 1.27%  e) none of the above

14. Assume the Japanese market has a correlation of .38 with the U.S. market and a standard deviation of return of 20.5%. What is the Japanese market's beta relative to the U.S. market? The standard deviation of return for the U.S. market is 18.2%.
a) 0.72%   b) 1.39%   c) 0.86%   d) 0.43%  e) none of the above

15. Assume the standard deviation of the U.S. market portfolio is 18.2%, the standard deviation of the non-U.S. portion of the world portfolio is 17.1%, and the correlation between the U.S. and non-U.S. market portfolios is .47. Suppose you invest 40% of your money in the U.S. stock market and the other 60% in the non-U.S. portfolio. What is the standard deviation of your portfolio? (FI4510 students need not know how to do this type of question)
a) 17.7%  b) 9.4%  c) 15.1%  d) 18.3%  e) none of the above

16. Assume the standard deviation of the U.S. market portfolio is 18.2%, the standard deviation of the non-U.S. portion of the world portfolio is 17.1%, and the correlation between the U.S. and non-U.S. market portfolios is .47. Suppose you invest 25% of your money in the U.S. stock market and the other 75% in the non-U.S. portfolio. What is the standard deviation of your portfolio?
a) 16.7%   b) 15.5%  c) 17.1%   d) 18.6%   e) none of the above (FI4510 students need not know how to do this type of question)

17. The benefits to international diversification may be limited by the lack of ----- in foreign markets.
a) liquidity   b) free convertibility of many currencies  c) adequate information  d) all of the above

19. Instead of buying foreign stocks overseas, investors can buy foreign equities traded in the United States in the form of
a) American Depository Receipts  b) American MNCs   c) global mutual funds   d) all of the above  e) a and b only

Ans: 1. d 2. b. 3. d 4. a 5. b 6. b 7. c 8. c 9. c 11.c 12. a 13. a 14. d  15. c  16. b  17.d 19.a