Why Is a Portfolio Including Both Domestic and Foreign Securities

question 12

Multiple Choice

Why is a portfolio including both domestic and foreign securities likely to have a higher average yield than one only containing domestic securities?

• A)Yields on foreign securities are more likely to be inversely related to yields on domestic securities.
• B)Yields on foreign securities are less likely to be inversely related to yields on domestic securities.
• C)Yields on foreign securities do not depend on economic conditions abroad,as do yields on domestic securities.
• D)A portfolio including both foreign and domestic securities is NOT likely to have a higher average yield than one containing only domestic securities.

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Definitions:

Demand Curve

An illustration that depicts the connection between how much of a product consumers want to buy and its cost.

Perfectly Inelastic

A situation in demand where the quantity demanded does not change regardless of the change in price.

Perfectly Elastic

This describes a situation where a small change in price leads to an infinite change in the quantity demanded or supplied.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of the good that consumers are willing and able to purchase at various prices.