Global Capital Markets Flashcards
7 cards from real CIMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Global Capital Markets flashcards as text
The 'impossible trinity' (Mundell-Fleming trilemma) in international finance states that a country cannot simultaneously maintain:
Answer: A fixed exchange rate, free capital mobility, and independent monetary policy
The trilemma holds that policymakers can achieve at most two of three goals: fixed exchange rate, open capital account, and autonomous monetary policy.
In global fixed income, 'convexity' is most valuable to bondholders when:
Answer: Interest rates are highly volatile in either direction
Positive convexity benefits bondholders in volatile rate environments because price gains when rates fall exceed price losses when rates rise by the same amount.
A global portfolio manager using a 'top-down' approach to international equity allocation would first consider which factor?
Answer: Macroeconomic conditions, country risk, and currency outlook
Top-down investing begins with macroeconomic analysis (GDP growth, interest rates, currency trends, political risk) to allocate across countries before drilling into sectors and stocks.
Which measure best captures the total return to a U.S. investor holding a foreign equity position?
Answer: Local currency equity return plus the return from currency movement (USD/foreign)
A U.S. investor's total return equals the local currency equity return combined with the appreciation or depreciation of the foreign currency against the USD.
Sovereign credit ratings assigned by agencies like Moody's and S&P primarily reflect:
Answer: A government's willingness and ability to meet foreign currency debt obligations
Sovereign ratings assess both the capacity (economic fundamentals, debt sustainability) and willingness (political factors, debt history) of a government to service its foreign currency obligations.
The 'home bias' puzzle in global investing refers to the observed tendency of investors to:
Answer: Overweight domestic equities relative to their global market-cap weight
Empirical research consistently shows investors hold far more domestic equities than optimal diversification theory suggests, forgoing significant international diversification benefits.
In emerging market investing, 'political risk' insurance for cross-border investments is most commonly provided by:
Answer: The Multilateral Investment Guarantee Agency (MIGA), a World Bank Group member
MIGA provides political risk insurance and credit enhancement to private investors and lenders in developing countries, covering risks like expropriation, currency transfer restrictions, and civil disturbance.