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Q:
Perhaps the largest disadvantage of real assets is the absence of large, liquid, and relatively efficient markets.
Q:
A variable-rate mortgage allows the borrower to select a different rate of interest depending on economic conditions.
Q:
Real assets may offer an opportunity as an inflation hedge because inflation means higher replacement costs for real estate, precious metals, and other physical items.
Q:
Twin factors that make real estate an attractive investment are tax write-offs and appreciation from inflation.
Q:
Silver has more industrial and commercial uses than gold.
Q:
The time period over which real estate is financed is almost always the same period over which depreciation is taken.
Q:
A negative aspect of diamond investments is the relatively high cost of buying and selling them.
Q:
Real estate investment trusts provide a large, liquid investment alternative to small investors.
Q:
The only tax benefit for real estate owners is depreciation allowances.
Q:
Diamonds have enjoyed an enviable record of no price declines over the past few years.
Q:
In a real estate syndicate, a general partner has limited liability.
Q:
A major advantage of real estate over other real assets is its liquidity.
Q:
Under some mortgage arrangements, the lender may loan the funds at a rate well below the current market rate.
Q:
A problem with real estate investments is that all require direct management by the owner.
Q:
The value of the comparable sales approach to real estate valuation is that it is highly theoretical.
Q:
Dealer spreads on real assets tend to be less than on stocks or bonds.
Q:
The value of real assets moves closely with the value of financial assets, and therefore they provide effective portfolio diversification.
Q:
There is often a place for real assets in a truly diversified portfolio.
Q:
While providing an effective hedge against inflation, real assets do not have particularly efficient liquid markets.
Q:
Movements between various real and monetary assets are less positively correlated than those for monetary assets alone.
Q:
a) You invest in the Canadian Equity market and you lose 20% (quoted in Canadian dollars). In the meantime, the United States dollar declines by 5% against the Canadian dollar. What is your percentage gain or loss, translated into dollars?
b) If the United States dollar declines by 10% against the Canadian dollar, what would be your percentage gain or loss, translated into dollars?
Q:
Evidence shows real assets to be an inflation hedge.
Q:
Assume you invest in the European Equity Market and have a 15% return (quoted in Euros).a) If during this period the euro appreciated by 10% against the dollar, what would be your actual return, translated into United States dollars?b) What if the euro declined by 10% against the dollar, what would your actual return be, translated into dollars?c) Recompute the answer based on a 15% decline in the euro against the dollar.
Q:
The price of diamonds around the world is controlled not by economic factors, but by one monopolistic company.
Q:
Developed countries' stock market returns have correlations to the U.S. market that:A.are stable over the years.B.seem to maintain their relative rank order to each other compared to the U.S.C.are consistently correlated to the U.S. markets at less than 1.00.D.as a group, have seen their correlation decline over the last 42 years.
Q:
Under a graduated payment mortgage, annual payments are adjusted based on the new existing interest rate.
Q:
There are several reasons why some analysts think that financial markets have become more highly correlated in recent years. Which one does not belong?
A.The development of a global economy has made companies and those economies more connected and less diverse
B.The new European Central Bank has coordinated economic policy across the European Union, making that region more coordinated
C.U.S. companies operating abroad, like Coca Cola, McDonalds, and ExxonMobil, are highly correlated with U.S. markets
D.Every time we have a world event such as September 11, 2001, a currency crisis, or a market collapse somewhere, the international stock markets seem to fall together, making them look like they are highly correlated
Q:
Specialists in international securities associated with financial management firms provide their expertise primarily to:
A.wealthy investors.
B.institutional investors.
C.managers of mutual funds.
D.More than one of the above
Q:
The prices of gold and silver tend to be positively correlated with the stock market.
Q:
Which of the following statements about mutual funds and closed-end investment companies investing in foreign companies is true?
A.The fund managers are specialists at handling various foreign investment problems
B.It is difficult to track the stock prices of foreign equity investments
C.Professional management provides an opportunity for superior returns compared to the foreign market
D.All of the above are true
Q:
Emerging markets have the following characteristics:
A.the 20 largest U.S. companies added together by market capitalization are bigger than any emerging market capitalization except China.
B.the International Monetary Fund separates developed and emerging markets by the market capitalization of the respective markets.
C.liquidity would be the same as a small company traded on the NASDAQ stock market.
D.continuous auction markets.
Q:
REITs are very similar to mutual funds or investment companies.
Q:
When looking at the list of countries in the emerging market list,
A.China has the biggest market capitalization.
B.Korea has the biggest market capitalization.
C.Russia has the biggest market capitalization.
D.Taiwan has the biggest market capitalization.
Q:
Methods of indirect international investment include all of the following except:
A.buying shares of a multinational corporation.
B.investing in mutual or closed-end worldwide investment funds.
C.hiring a specialist in foreign investments.
D.All of the above are methods
Q:
The market capitalization of developed countries from 2005 to 2009:
A.decreased by about $1.6 trillion, or approximately 4.5%.
B.decreased by about $13 trillion because of the currency crisis in Asia during 1987-98.
C.was relatively flat because of the U.S. stock market downturn of 2000-2002.
D.increased by about $13 trillion because of the inclusion of China, Korea, and Russia into the list of developed countries.
Q:
Direct international investment without the numerous associated administrative problems can be achieved by purchasing shares:
A.of foreign firms which trade on the New York Stock Exchange or NASDAQ.
B.in a mutual fund.
C.in an exchange-traded fund.
D.of multinational corporations.
Q:
Which of the following statements about the information available on publicly traded foreign firms is NOT true?
A.At least the accounting standards are the same for U.S. and international companies
B.Comparative industry data is generally not available
C.If you purchase a foreign firm directly on a foreign market, you will receive your annual reports in the language of the country, which most likely will not be English
D.The information is less rigorously regulated than in the United States
Q:
Which of the following reasons might explain why international investing might offer diversification benefits?
A.Companies operating in different countries will be affected differently by international events such as crop failures, energy prices, wars, tariffs, etc.
B.Since the introduction of the euro, European and U.S. markets have a tendency to move in the same direction on an annual basis
C.World markets are highly correlated to the U.S. market since the U.S. is the engine of economic growth around the world
D.U.S. companies operating in foreign countries automatically provide the investor with diversification against foreign currency fluctuations
Q:
Which of the following are benefits of diversification into foreign securities?
A.Diversification offers opportunities for higher returns than a single-country portfolio
B.Diversification reduces portfolio volatility
C.Returns between countries are not highly correlated
D.All of the above
Q:
Administrative problems, such as different settlement procedures for various markets, can best be avoided by:
A.becoming thoroughly comfortable with each country's procedures.
B.using a local broker.
C.investing in a mutual fund.
D.None of the above
Q:
Indirect means of participating in foreign investments include purchasing:
A.exchange-traded funds.
B.open-end mutual funds specializing in foreign securities.
C.closed-end mutual funds.
D.All of the options
Q:
The main problem associated with the taxation of foreign investors is:
A.the withholding rate is frequently 40% higher than that of the United States.
B.dividends from some securities are taxed twice, once by the foreign government, and once by the United States government.
C.the inconvenience of having to apply for a foreign tax credit on your U.S. income tax return and keeping track of the information over the tax year.
D.None of the above
Q:
All of the following are obstacles to foreign investing, except:
A.political risks associated with foreign nations.
B.language barriers.
C.diversification difficulties.
D.market efficiency.
Q:
Political risk can best be effectively reduced or eliminated:
A.by investing only in European countries.
B.through sufficient international diversification.
C.by investing only in countries friendly to the United States.
D.All of the above
Q:
Emerging markets often have market structures similar to those in the developed world and trade their securities in a continuous auction market.
Q:
Multinational corporations are firms that:
A.are located in one country and invest in another.
B.operate in one country and export those goods to other countries.
C.operate in several countries.
D.have clients in several countries.
Q:
There may be an opportunity for profit in a politically unstable country if:
A.that country's domestic investors overreact in response to political changes.
B.the regime in power is openly courting big business.
C.the leaders of that country decide to cancel all foreign debt obligations.
D.More than one of the above
Q:
An investor can earn a higher return in foreign markets than in the U.S. because:
A.a number of countries have superior real GDP growth rates compared to the U.S.
B.of foreign competitiveness in traditional U.S. products such as automobiles and steel.
C.of the fact that many nations enjoy a higher savings rate than the United States, which leads to capital formation and potential investment opportunity.
D.All of the above
Q:
The currency crisis in South Asia caused a big decrease in the value of South Asian countries' market values between 1996 and 2002.
Q:
Which of the following is NOT a valid reason for discounting the importance of stable foreign currency in evaluating international investment alternatives?
A.A devaluation in one country is usually offset by an increase in value in another
B.The overall effect of a devaluation in the economy of the country is insignificant
C.Risk exposure can be hedged through foreign exchange contracts or foreign currency options
D.All of the above are valid reasons
Q:
An advantage to investing in foreign markets is:
A.diversification.
B.that it is easy to profit from foreign currency exchange.
C.that there is more potential to profit from foreign markets than domestic markets.
D.that there is less risk involved in investing in foreign markets.
Q:
At the end of 2005, North America, Asia Pacific, and Europe each accounted for one-third of the world's markets capitalization.
Q:
An investment in Mexico produces a return of 80%. However, the Mexican peso has just declined by 45%, relative to the dollar. The previous value of the peso was $.0066. The adjusted return on the investment is a(n):
A.42% gain.
B.8.5% loss.
C.1.0% loss.
D.None of the above
Q:
Indirect international investment effectively eliminates problems with:
A.taxation by foreign governments.
B.administration of foreign securities problems.
C.different cultures and reporting standards.
D.All of the above
Q:
An investor who wishes to achieve high returns and low risk exposure through international diversification would probably look for:
A.a compound rate of return higher than that in the United States and a negative or low positive correlation of returns with the United States market.
B.stable currencies relative to the dollar, total market value potential higher than the United States, and high correlation of returns.
C.a compound rate of return equal to that of the United States and a correlation coefficient close to that of the United States.
D.None of the above
Q:
An "emerging market" is defined as a market where the country has a small capital market relative to the industrialized world.
Q:
Which of the following might be a reason for higher return potential in certain foreign stock markets than in U.S. markets?
A.Some small economies have more growth potential because they are starting from a smaller base of GDP
B.GDP is growing at a faster rate in some countries than in the United States
C.Many of these foreign economies have older populations that spend a higher percentage of their income than the U.S. population
D.A and B are valid reasons
Q:
Even though Korea and China have markets bigger than some markets in developed countries, they are considered to be emerging markets because they have low per-capita gross domestic product.
Q:
Since the beginning of the 1990s, we have seen major growth in "emerging" markets, such as Chile, Mexico, Poland, and the Czech Republic.
Q:
The investor can maximize risk reduction benefits by combining United States securities with those of countries which are ________.
A.oil-exporting nations.
B.negatively or least positively correlated with the United States.
C.correlated with the United States.
D.None of the above
Q:
The second largest equity market in the world at the end of 2005 was that of:
A.Japan.
B.the United Kingdom.
C.the United States.
D.Germany.
Q:
ADRs (American Depository Receipts) represent an ownership interest in a foreign company's common stock.
Q:
Between year-end 2002 and 2005, the value of the United States equity markets as a percentage of the total world equity markets has:
A.increased 100%.
B.increased from 35% to 42% of the total developed market.
C.decreased from 53% to 33% of the total developed market.
D.decreased slightly, from about 51% to 48% of total developed market.
Q:
Generally, foreign markets are more liquid and efficient than U.S. capital markets.
Q:
Investing directly in the international equities markets refers to buying shares:
A.of multinational corporations.
B.of foreign companies.
C.of internationally invested mutual funds.
D.More than one of the above
Q:
Currency fluctuations and rates of return are the only really important things to consider when investing internationally.
Q:
Correlations between U.S. returns and foreign stock returns appear to remain fairly stable from period to period.
Q:
International diversification will provide low risk when the investor finds international securities having a compound rate of return equal to that of the United States and a correlation coefficient close to that of the United States portfolio.
Q:
The correlation coefficient measures the movement of one series of data to another series of data over the same time period.
Q:
Emerging markets seem to have fairly consistent valuation standards and ratios.
Q:
One possible way of achieving international diversification in a portfolio is to invest in foreign firms which trade on United States markets or through ADRs.
Q:
One of the biggest risks when investing in a foreign security market is the risk of currency exchange fluctuations.
Q:
Correlations of foreign stock market movements to U.S. stock market movements show that the period from 1997 to 2002 had higher correlations than in the past.
Q:
By combining foreign securities with domestic securities, investors increase their portfolio risk because foreign securities are more volatile than United States securities.
Q:
The best possible way of achieving international diversification is to invest in United States companies having a large share of their business coming from foreign investment.
Q:
The data show that several markets such as the United States and Britain continually outperform the other developed markets such as Canada, Switzerland, and Japan.
Q:
In the developing world, Germany has the second largest equity market after the United States.
Q:
The market capitalization of the 20 largest U.S. companies would rank ahead of any emerging market's capitalization, including China by 2009.
Q:
The United States equity markets accounted for over 50% of the value of the world equity market at the end of 2009.
Q:
Investing in an international mutual fund does not help the investor avoid the administrative problems one would encounter if investing directly in foreign securities.