Choose wisely. There is only one correct answer to each question.
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1.
For a U.S. investor, the return on a foreign stock is _______.
The return of the stock itself and the currency in which it's denominated. You get the stock's return along with the change in value of the local currency versus the U.S. dollar, provided that currency exposure is not hedged by the fund manager.
2.
Suppose you buy shares of a British stock. The stock falls 5%, but Britain's currency gains 10% against the dollar. As an unhedged U.S. investor, you _______.
Made money. While you've lost money on the stock, you made a profit on the pound's rise against the dollar.
3.
Suppose you buy shares of a British stock. The stock falls 5%, but Britain's currency gains 10% against the dollar. You've hedged your currency back into U.S. dollars. You have _______.
Lost money. Because you've hedged your currency exposure, it doesn't matter what the pound does; your returns are affected only by the stock's performance--and in this case, that means you've lost money.
4.
International funds are volatile because they prefer to hold small-cap stocks.
False. International funds do not, as a rule, prefer to hold small-cap stocks.
5.
International small-cap funds are generally _______.
More volatile than international large-cap funds. During some time periods, international small-cap funds may outperform international large-cap funds; during other periods, they'll underperform. But they tend to be more volatile in general.
