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2. What special advantage do mutual funds confer for investing in emerging markets?
A. Emerging markets typically yield higher rates of returns for a given investment period
because risk is relatively high.
B. The correlation coefficients of returns between emerging and established markets are
generally negative.
C. Emerging funds allow investors to invest in specific markets even though they aren’t
familiar with corporations, laws, and particulars of investing in those markets.
D. Emerging market mutual funds provide diversification not available in global or
international funds.
3. Which of the following investments would certainly increase your risk exposure if most of
your portfolio is dominated by U.S. investments?
A. International investments characterized by a correlation with U.S. investments near zero
B. International investments with high historical rates of return and, therefore, to the right
side of the security market line
C. A mix of European and Pacific Basin stocks purchased through an international
mutual fund
D. International investments in countries where the exchange rate fluctuates excessively
4. If you were supervisor of a mutual fund investment manager working for an international
growth fund, how would you interpret the following situation? The manager recommends
purchase of stock in General Electric, a New York–based corporation. Her rationale for the
purchase is based on the fact that General Electric’s operations and revenue are truly international,
with a substantial proportion of operations and revenue from over a dozen countries.
A. If the manager were permitted to make the purchase, it would violate the fund’s
investment policy.
B. General Electric’s international exposure would enhance the fund’s diversification.
C. General Electric would add to the fund’s diversification, but the corporation’s large size
is contrary to the growth objective for the fund.
D. General Electric’s diverse operations are a favorable attribute, and the company’s
growth would enhance the fund’s growth objective.
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