12. Because of increasing correlation between U.S. markets and foreign markets,

Question

12. Because of increasing correlation between U.S. markets and foreign markets, most professional investors now recommend: a. zero exposure to foreign markets for the foreseeable future b. replacing foreign stock exposure with U.S. Treasury bonds c. maintaining some reasonable exposure to foreign markets d. replacing foreign stock exposure with sovereign debt from investment grade countries. 13. Systematic risk is also called: a. diversifiable risk b. market risk c. random risk d. company-specific risk 14.When using the Markowitz model, aggressive investors would select portfolios on the left end of the efficient frontier. a. True b. False

Explanation / Answer

12

Option “c. maintaining some reasonable exposure to foreign markets” is correct

Due to increasing correlation, foreign market can be predicted in relation to US market.

13

Option “b. Market risk” correct

Systematic risk also called market risk or non-diversifiable risk, systematic risk is the fluctuation of returns caused by the macroeconomic factors that affect all risky assets.

14

Option “b. False” is correct

According to Markowitz, rational investors will seek efficient portfolios because these portfolios are optimal based on expected return and risk

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