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Multiple Choice Questions

1. Shares of several foreign firms are traded in the U.S. markets in the form

of A) ADRs B) ECUs C) single-country funds D) all of the above E) none of the above

Answer: A Difficulty: Easy Rationale: American Depository Receipts (ADRs) allow U. S. investors to

invest in foreign stocks via transactions on the U.S. stock exchanges.

2. __________ refers to the possibility of expropriation of assets, changes

in tax policy, and the possibility of restrictions on foreign exchange transactions. A) default risk B) foreign exchange risk C) market risk D) political risk E) none of the above

Answer: D Difficulty: Easy Rationale: All of the above factors are political in nature, and thus are

examples of political risk.

3. __________ are mutual funds that invest in one country only. A) ADRs B) ECUs C) single-country funds D) all of the above E) none of the above

Answer: C Difficulty: Easy Rationale: Mutual funds that invest in the stocks of one country only are

called single-country funds.

4. The performance of an internationally diversified portfolio may be

affected by A) country selection B) currency selection C) stock selection D) all of the above E) none of the above

Answer: D Difficulty: Easy Rationale: All of the above factors may affect the performance of an

international portfolio.

5. Over the period 2001-2005, most correlations between the U.S. stock index

and stock-index portfolios of other countries were A) negative B) positive but less than .9 C) approximately zero D) .9 or above E) none of the above

Answer: B Difficulty: Moderate Rationale: Correlation coefficients were typically below .9, while

correlations between well-diversified U. S. market portfolios were typically above .9. See Table 25.10.

6. The __________ index is a widely used index of non-U.S. stocks. A) CBOE B) Dow Jones C) EAFE D) all of the above E) none of the above

Answer: C Difficulty: Easy Rationale: The Europe, Australia, Far East (EAFE) index computed by Morgan

Stanley is a widely used index of non-U.S. stocks.

7. The __________ equity market had the highest average local currency return

between 2001 and 2005. A) Russian B) Norwegian C) U.K. D) U.S. E) none of the above

Answer: A Difficulty: Moderate Rationale: See Table 25.9.

8. The __________ equity market had the highest average U.S. dollar return

between 2001 and 2005. A) Russian B) Finnish C) Columbian D) U.S. E) none of the above

Answer: C Difficulty: Moderate Rationale: See Table 25.9.

9. The __________ equity market had the highest average U.S. dollar standard

deviation between 2001 and 2005. A) Turkish B) Finnish C) Indonesian D) U.S. E) none of the above

Answer: A Difficulty: Moderate Rationale: See Table 25.9.

10. The __________ equity market had the highest average local currency

standard deviation between 2001 and 2005. A) Turkish B) Finnish C) Indonesian D) U.S. E) none of the above