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Exam 15: International Portfolio Investment

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Question 41

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

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Question 42

Essay

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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.

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Question 43

Multiple Choice

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With regard to the OIP,

The "Sharpe performance measure" (SHP) is

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a $50 American stock. The stock pays a $0.30 quarterly dividend, and after one year the investment sells for $54 the exchange has changed from €.625 per dollar to €.6875 per dollar.

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a £50 British stock. 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 stock market of country A has an expected return of 5%, and standard deviation of expected return of 8%. The stock market of country B has an expected return of 15% and standard deviation of expected return of 10%. Find the Global Minimum Variance Portfolio.

Bema Gold is an exploration and production company that trades on the Toronto stock exchange. Assume that when purchased by an international investor the stock's price and the exchange rate were CAD5 and CAD1.0/USD0.72 respectively. At selling time, one year after the purchase date, they were CAD6 and CAD1.0/USD1.0. Calculate the investor's annual percentage rate of return in terms of the U.S. dollars.

The stock market of country A has an expected return of 5%, and a standard deviation of expected return of 8%. The stock market of country B has an expected return of 15% and a standard deviation of expected return of 10%. Find the Global Minimum Variance Portfolio.

U.S.-based mutual funds known as country funds.

With regard to the OIP,

Calculate the euro-based return an Italian investor would have realized by investing €10,000 into a $50 American stock. One year after investment, the stock pays a $1 dividend, and sells for $54 the exchange rate has changed from €.625 per dollar to €.6875 per dollar, although he sold $16,000 forward at the forward rate of €.65 per dollar.

Suppose you are a euro-based investor who just sold Microsoft shares that you had bought six months ago. You had invested €10,000 to buy Microsoft shares for $120 per share; the exchange rate was $1.55 per euro. You sold the stock for $135 per share and converted the dollar proceeds into euro at the exchange rate of $1.50 per euro. Compute the rate of return on your investment in euro terms.

The realized dollar returns for a U.S. resident investing in a foreign market will depend on the return in the foreign market as well as on the exchange rate fluctuations between the dollar and the foreign currency. Calculate the variance of the monthly rate of return in dollar terms, if the variance of the foreign market's return (in terms of its own currency) is 1.14, the variance between the U.S. dollar and the foreign currency is 17.64, the covariance is 2.34, and the contribution of the cross-product term is 0.04.

Advantages of investing in mutual funds known as country funds include:

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

The stock market of country A has an expected return of 5%, and a standard deviation of expected return of 8%. The stock market of country B has an expected return of 15% and a standard deviation of expected return of 10%. Is it reasonable to conclude that your portfolio is on the efficient frontier? If not, then prove your point by finding just one portfolio weighting between A and B that offers more return with less risk. If you think it is on the efficient frontier, why do you think this? EITHER WAY, YOUR ANSWER SHOULD INCLUDE VERIFICATION.

For those investors who desire international equity exposure, WEBS

Under the investment dollar premium system,

The majority of ADRS