8.6 Domestic versus Foreign Investments

What of the following statements are TRUE?

I. The U.S. economy, as measured by its GDP, is always the fastest-growing economy in the world

II. GDP grows at different rates for different countries

III. Some countries exhibit negative GDP

IV. GDP growth rates are always positive, never negative

• I and IV only

• II and III only

• I, II, and III only

• I and II only

What are the two largest economies in the world?

• United Kingdom and Germany

• China and India

• United States and China

• Mexico and Ireland

The tendency for people of any particular country to invest primarily in their own stock market is referred to as:

• a familiarity bias

• an optimism bias

• overconfidence

• a status quo bias

An advantage of investing internationally is:

• low correlation between U.S. stocks and international stocks, which reduces investment risk

• the best investments are always overseas

• low correlation reduces portfolio returns

• reduced portfolio volatility and higher returns can be achieved by taking no additional risk

The risks inherent in international investing include:

• currency exchange rate risk, less regulation, and reduced marketability

• currency exchange rate risk

• less regulatory oversight

• reduced marketability

Given a high tolerance for risk and a desire to invest internationally, investment in which type of countries could represent good investment opportunities?

• countries with strong GDP growth

• countries with negative GDP growth

• countries with strong oversight and legal structure

• countries with strong GDP growth, oversight, and legal structure

American Depositary Receipts:

I. represent one or more shares in a foreign company

II. make international investing easy and affordable

III. are a way to invest in foreign stocks directly

IV. trade on U.S. exchanges

• I, II, and III

• I, II, and IV

• I only

• IV only

Americans can gain access to foreign investments using:

• exchange-traded funds

• American Depositary Receipts

• mutual funds

• exchange-traded funds, American Depositary Receipts, and mutual funds

Which of the following mutual funds invests in both U.S. and foreign stocks?

• international fund

• global fund

• regional fund

• country fund

A regional fund invests:

• in specific markets, such as Europe, Asia, or Pacific Rim

• in foreign companies, as well as U.S. firms

• only in firms outside of the United States

• to replicate the returns of the market