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2. What special advantage do mutual funds confer for investing in emerging markets?

1. Emerging markets typically yield higher rates of returns for a given investment period because risk is relatively high.

2. The correlation coefficients of returns between emerging and established markets are generally negative.

3. Emerging funds allow investors to invest in specific markets even though they arent familiar with corporations, laws, and particulars of investing in those markets.

4. Emerging market mutual funds provide diversification not available in global or international funds.

5. Which of the following investments would certainly increase your risk exposure if most of your portfolio is dominated by U.S. investments?

   1. InternationalinvestmentscharacterizedbyacorrelationwithU.S.investmentsnearzero

   2. International investments with high historical rates of return and, therefore, to the right

      side of the security market line

   3. A mix of European and Pacific Basin stocks purchased through an international

      mutual fund

   4. International investments in countries where the exchange rate fluctuates excessively

6. 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 Yorkbased corporation. Her rationale for the purchase is based on the fact that General Electrics operations and revenue are truly inter- national, with a substantial proportion of operations and revenue from over a dozen countries.

   1. If the manager were permitted to make the purchase, it would violate the funds investment policy.

   2. General Electrics international exposure would enhance the funds diversification.

   3. General Electric would add to the funds diversification, but the corporations large size

      is contrary to the growth objective for the fund.

   4. General Electrics diverse operations are a favorable attribute, and the companys

      growth would enhance the funds growth objective.

   5. If you wanted international diversification but wanted to decide which countries you would invest in, which strategy would you use?

      A. Invest through iShares country-specific exchange-traded funds. B. Invest through a global mutual fund. C. Invest through World Equity Benchmark shares. D. Invest in euros.

   6. Of the reasons listed below, which is the most important reason to invest internationally?

      1. The overall return on international investments exceeds the return on most domestic investments, thereby increasing total return.

      2. Internationalinvestmentsmayberiskierthandomesticinvestments,buttheirdiversifying effect can reduce the risk of the entire portfolio.

      3. International investments reduce total portfolio risk because returns on international investments typically have a lower standard deviation than domestic investments.

      4. Although domestic investments offer some growth opportunities, the mature domestic market lacks the number of growth opportunities in emerging economies.