LOS h: Discuss the characteristics of alternative global and international benchmarks used in performance evaluation.

Q1. Which one of the following is NOT a consideration while forming a custom global benchmark?

A)   A currency hedging component.

B)   Specification of the risk measure to be used for performance evaluation.

C)   Specification of the industry weights worldwide.

Q2. For a global portfolio, why is a custom benchmark used?

A)   A custom benchmark is more suitable for thinly traded international stocks.

B)   Published indices are not comparable to the portfolio.

C)   Since the custom benchmark is created by the manager, it is more likely to be accepted.

Q3. For a global portfolio, the benchmark has to:

A)   have the same amount of risk as the portfolio under consideration.

B)   be consistent with the investment objective of the portfolio.

C)   be custom defined by the manager of the portfolio.

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Q1. Which one of the following is NOT a consideration while forming a custom global benchmark?

A)   A currency hedging component.

B)   Specification of the risk measure to be used for performance evaluation.

C)   Specification of the industry weights worldwide.

Correct answer is B)

Custom benchmarks involve a variety of considerations including a currency hedging component (if desired) and an industry weights component (bypassing the country weights).

Q2. For a global portfolio, why is a custom benchmark used?

A)   A custom benchmark is more suitable for thinly traded international stocks.

B)   Published indices are not comparable to the portfolio.

C)   Since the custom benchmark is created by the manager, it is more likely to be accepted.

Correct answer is B)

Custom benchmarks are specified for a global portfolio because universally accepted indices may not be comparable to the portfolio.

Q3. For a global portfolio, the benchmark has to:

A)   have the same amount of risk as the portfolio under consideration.

B)   be consistent with the investment objective of the portfolio.

C)   be custom defined by the manager of the portfolio.

Correct answer is B)

The benchmark should be consistent with the investment objective of the portfolio.

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