1. Why is there a greater benefit from diversifying internationally than from diversifying within a single country? A. The average correlation between two stocks in different countries is lower than the average correlation between two stocks in the same country. B. The average correlation between two stocks in different countries is higher than the average correlation between two stocks in the same country. C. There is not a greater benefit to diversifying internationally. D. Foreign stocks have higher average returns than domestic stocks. E. Foreign stocks have lower standard deviations than domestic stocks.
2. Brooke lives and works in the USA, but decided to invest a portion of her portfolio in Japanese equities. Brooke’s international diversification involves introducing what type of foreign exchange risk? A. A long position in the USD relative to the JPY B. A short position in the USD relative to the JPY C. No foreign exchange risk D. A long position in the USD relative to all foreign currencies E. A short position in the USD relative to all foreign currencies
3. You decide whether to invest with one of two managers by choosing the manager with the higher Sharpe ratio. This may be problematic for all of the following reasons EXCEPT: A. The two return series are from different time periods. B. The two managers have different investment styles. C. You are planning on investing your entire portfolio with the better manager. D. One manager uses leverage and the other manager does not use leverage. E. One Sharpe ratio is calculated using monthly returns and the other Sharpe ratio is calculated using daily returns.