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Exam 19: Globalization and International Investing

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Question 1

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An importer of televisions from Japan has a contract to purchase a shipment of televisions for 2,000,000 yen.The spot rate increases from 105 yen per dollar to 108 yen per dollar.What is the importer's gain or loss?

A) $529 gain
B) $529 loss
C) $619 gain
D) $619 loss

E) A) and D)
F) B) and D)

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Question 2

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Suppose the 1-year risk-free rate of return in the USA is 5% and the 1-year risk-free rate of return in Britain is 8%.The current exchange rate is $1 = ₤0.50.A 1-year future exchange rate of __________ would make a U.S.investor indifferent between investing in the U.S.security and investing in the British security.

A) ₤0.5150
B) ₤0.5142
C) ₤0.5123
D) ₤0.4859

E) B) and C)
F) C) and D)

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Question 3

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The quoted interest rate on a 3 month Canadian security is 8%.The current exchange rate is C $1 = US $0.68.The 3 month forward rate is C $1 = US $0.70.The APR (denominated in US$) that a U.S.investor can earn by investing in the Canadian security is __________.

In 2007,U.S.securities represented ______ of the world market for equities.

Four largest economies in the world in 2007 were ____________.

Which one of the following allows you to purchase stock of a specific foreign company?

One year U.S.interest rates are 5% and European interest rates are 7%.The spot euro direct exchange rate quote is 1.32 and the one year forward rate direct quote is 1.35.If you have $1 million dollars or € 1 million to start with what would be your dollar profits from an interest arbitrage based on this data?

In the PRS financial risk ratings the U.S.rates poorly because of the U.S.experiences ________. I.large budget deficit II.large trade deficit III.large amount of total debt

In 2007,the ___ countries with the largest capitalization of equities made up approximately 60% of the world equity portfolio.

Inclusion of international equities in a U.S.investor's portfolio has historically produced ___________________.

Total capitalization of corporate equity in the U.S.at the beginning of 2009 was about _______ trillion.

WEBS differ from mutual funds in that __________. I.Shares of WEBS can be shorted II.WEBS shares trade continuously on the AMEX III.WEBS are passively managed

25 countries with largest equity capitalization made up about _____ of the word GDP in 2007.

The risk-free interest rate in the US is 8% while the risk-free interest rate in the UK is 15%.If the 1-year futures price on the British pound is $2.40,the spot market value of the British pound today should be __________.

Limiting your investments to the top six countries in the world in terms of market capitalization may make sense for a/an _________ investor but probably does not make sense for a/an ________ investor.

You invest in various broadly diversified international mutual funds as well as your U.S.portfolio.The one risk you probably don't have to worry about affecting your returns is __________.

In the PRS country composite risk ratings a score of ______ represents the least risky and a score of _____ represents the most risky.

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

Suppose a U.S. investor wishes to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest and the current exchange rate is $1.40/₤. -After one year,the exchange rate is $1.60/₤ and the share price is ₤55.What is the dollar-denominated return?

Real U.S.interest rates move above Japanese interest rates.If you believe that Japanese interest rates won't move and you believe that interest rate parity will hold then ____________.