LOS a: Evaluate the effect of currency movements on the portfolio rate of return, calculated in the investor's base currency.

Q1. FQ global fund is a US fund with investments in European equity and was valued at 102 million Euros as of January 1, 2003. During the first quarter of 2003, dividend income paid out by the fund was 2.3 million Euros. The fund was valued at 105.10 million Euros as of March 31, 2003. During the quarter, the Euro appreciated by 2% against the US Dollar. What is the capital gains yield on the fund in local currency?

A)   5.10%.

B)   3.10%.

C)   3.04%.

Q2. FQ global fund is a US fund with investments in European equity and was valued at 102 million as of January 1, 2003. During the first quarter of 2003, dividend income paid out by the fund was 2.3 million. The fund was valued at 105.10 million as of March 31, 2003. During the quarter, the Euro appreciated by 2% against the US Dollar. What is the total return on the fund in local and home currencies?

A)   5.29%; 7.40%.

B)   5.10%; 7.10%.

C)   3.10%; 5.10%.

Q3. FQ global fund is a US fund with investments in European equity and was valued at 102 million as of January 1, 2006. During the first quarter of 2006, dividend income paid out by the fund was 2.3 million. The fund was valued at 105.10 million as of March 31, 2006. During the quarter, the Euro appreciated by 2% against the U.S. Dollar. What is the dividend yield on the fund in local currency?

A)   2.25%.

B)   3.10%.

C)   3.04%.

Q4. Primo Management Co. is looking at how best to compare and evaluate the performance of their managers. They have simply compared raw returns of the various portfolios to the raw returns of the S& 500, regardless of the asset weightings in the individual portfolios. However, Primo has been hearing more and more about benchmark portfolios and is interested in trying this approach. As such, they have hired Sally Jones, CFA, as a consultant to educate them on the best methods for constructing a benchmark portfolio, how best to choose a benchmark, whether the style of the fund under management matters, and what they should do with their global funds in terms of benchmarking. 

For the sake of discussion, Jones has put together some comparative two-year performance numbers that relate to Primo’s current domestic funds under management and a potential benchmark.

As part of her analysis, Jones also takes a look at one of Primo’s global funds. In this particular portfolio, Primo is invested 75% in Dutch stocks and 25% in British stocks. The benchmark invested 50% in each – Dutch and British stocks. On average, the British stocks out performed the Dutch stocks. The euro appreciated 6% versus the U.S. dollar over the holding period while the pound depreciated 2% versus the dollar. In terms of the local return, Primo out-performed the benchmark with the Dutch investments, but under-performed the index with respect to the British stocks.

The within- sector selection effect, by individual sector, is:

A)        0.6%                   -1.0%                   0.5%

B)        0.5%                   -0.8%                   0.2%

C)        1.6%                   -6.5%                   2.7%

Q5. The amount by which the Primo portfolio out (or under) performed the market over the period and the proportion attributable to the pure sector allocation and security selection decisions are, respectively:

A)        -1.4%                   -2.2%                 -0.1%

B)         1.4%                   -6.0%                   3.6%

C)         1.4%                    1.7%                   -0.3%

Q6. If Primo decides to use return-based style analysis, the R² of the regression equation of a passively managed fund:

A)   should be lower than the R² of an actively managed fund.

B)   should be equal if the two funds have equal weights with respect to style preference.

C)   should be higher than the R² of an actively managed fund.

Q7. If Primo decides to use the nine style/size benchmarking categories that are popular with many funds, they should be concerned about all of the following EXCEPT:

A)   the categories are so distinct that it might be difficult to classify funds into one of the nine.

B)   funds may have multiple style or size investments.

C)   if they use qualitative techniques to classify funds, managers may not be accurate in representing their investments.

Q8. With respect to Primo’s global funds, which of the following equations adequately captures the return on the asset in the domestic currency? Note the following:

• CG stands for capital gain or loss on asset j.
• CF stands for cash flow yield from dividend or interest payments on asset j.
• e_j equals the percentage change in the value of the currency.
• R^jd stands for the return on foreign investment converted to the domestic currency.

A)   R_jd = CG_j + CF_j + [e_j(1 - CG_j - CF_j).

B)   R_jd = CG_j + CF_j + [e_j(1 + CG_j + CF_j).

C)   R_jd = CG_j + CF_j - [e_j(1 + CG_j + CF_j).

Q9. Which of the following statements about Primo’s global fund is most correct? It appears that Primo has a positive currency allocation effect, a:

A)   negative market allocation effect, and a negative security allocation effect.

B)   negative market allocation effect, and a positive security allocation effect.

C)   positive market allocation effect, and a negative security allocation effect.

谢谢