Test bank International Finance MCQ(word)Chap 13

Fundamentals of Multinational Finance, 3e (Moffett) Chapter 13 Sourcing Equity Capital Globally 13.1 Multiple Choice and True/False Questions

1) The choice of when and how to source equity globally is usually aided early on by the advice

of

A) an investment banker.

B) your stock broker.

C) a commercial banker.

D) an underwriter.

Answer: A

Topic: Equity Sourcing

Skill: Recognition

2) Investment banking services include WHICH of the following?

A) advising when a security should be cross -listed B) preparation of stock prospectuses

C) help to determine the price of the issue

D) all of the above

Answer: D

Topic: Investment Banking

Skill: Conceptual

3) Most firms raise their initial capital in foreign markets.

Answer: FALSE

Topic: Raising Capital

Skill: Conceptual

4) Which of the following is the typical order of sourcing capital abroad?

A) An international bond issue, then cross listing the outstanding issues on other

exchanges, then an international bond issue in the target market.

B) An international bond issue in the target market then cross listing the outstanding

issues on other exchanges, then an international bond issue.

C) An international bond issue, then an international bond issue in the target market, then

cross listing the outstanding issues on other exchanges.

D) Cross listing the outstanding issues on other exchanges, then an international bond

issue, then an international bond issue in the target market. Answer: C

Topic: Global Equity Sourcing

Skill: Conceptual

5) ________ are negotiable certificates issued by a bank to represent the underlying shares of

stock, which are held in trust at a foreign custodian bank. A) Negotiable CDs

B) International mutual funds

C) Depositary receipts

D) Eurodeposits

Answer: C

Topic: Depositary Receipts Skill: Recognition

1

6) Depositary receipts traded outside the United States are called ________ depositary receipts.

A) Euro

B) Global

C) American

D) None of the above

Answer: B

Topic: Global Depositary Receipts

Skill: Recognition

7) Each ADR represents ________ of the shares of the underlying foreign stock.

A) a multiple B) 100 C) 1

D) ADRs have nothing to do with foreign stocks.

Answer: A

Topic: American Depositary Receipts

Skill: Recognition

8) ADRs cannot be exchanged for the underlying shares of the foreign stock, therefore,

arbitrage cannot keep the prices in line with the foreign price of the stock. Answer: FALSE

Topic: American Depositary Receipts

Skill: Conceptual

9) Which of the following is NOT an advantage of ADRs to U.S. shareholders?

A) Transfer of ownership is done in the U.S. in accordance with U.S. laws.

B) In the event of the death of the shareholder, the estate does not go through a foreign

court.

C) Settlement for trading is generally faster in the United States.

D) All of the above are advantages of ADRs.

Answer: D

Topic: American Depositary Receipts

Skill: Recognition

10) ADRs that are created at the request of a foreign firm wanting its shares traded in the United

States are ________. A) facilitated

B) unfacilitated

C) sponsored

D) unsponsored

Answer: C

Topic: American Depositary Receipts

Skill: Recognition

2

11) Who pays the costs of creating a sponsored ADR?

A) the foreign firm whose stocks underlie the ADR

B) the U.S. bank creating the ADR

C) both the U.S. bank and the foreign firm

D) the SEC since they require the regulation

Answer: A

Topic: American Depositary Receipts

Skill: Recognition

12) An unsponsored ADR may be initiated without the approval of the foreign firm with the

underlying stock. Answer: FALSE

Topic: American Depositary Receipts

Skill: Recognition

13) Level I ADRs trade primarily

A) on the New York Stock Exchange.

B) on the American Stock Exchange.

C) over the counter or pink sheets.

D) Level I ADRs typically do not trade at all, but instead are privately issued and held

until maturity. Answer: C

Topic: American Depositary Receipts

Skill: Recognition

14) Level II ADRs must meet

A) U.S. GAAP standards.

B) home country accounting standards.

C) both U.S. GAAP and home country standards.

D) none of the above.

Answer: A

Topic: American Depositary Receipts

Skill: Conceptual

15) Level ________ is the easiest standard to satisfy for issuing ADRs.

A) 144a B) III C) II D) I

Answer: D

Topic: American Depositary Receipts

Skill: Recognition

16) Level III ADR commitment applies to

A) firms that want to list existing shares on the NYSE.

B) banks issuing foreign mutual funds.

C) ADR issues of under $25,000.

D) the sale of a new equity issued in the United States.

Answer: D

Topic: American Depositary Receipts

Skill: Recognition

3

17) By cross listing and selling its shares on a foreign stock exchange a firm typically tries to

accomplish which of the following?

A) improve the liquidity of its existing shares

B) increase its share price

C) increase the firm's visibility

D) all of the above

Answer: D

Topic: Cross Listing Equity Shares

Skill: Conceptual

18) ADRs are considered an effective way for firms to improve the liquidity of their stock,

especially if the home market is small and illiquid. Answer: TRUE

Topic: American Depositary Receipts

Skill: Conceptual

19) In order, the largest stock exchanges in the world based on market capitalization of the

securities traded there are ________. A) London, NYSE, and Nasdaq

B) NYSE, Nasdaq, and London C) Nasdaq, NYSE, and London D) Tokyo, NYSE, and London

Answer: B

Topic: World Equity Markets

Skill: Recognition

20) The stock exchange with the greatest value of shares traded is ________.

A) NYSE

B) Tokyo

C) Nasdaq

D) London

Answer: A

Topic: World Equity Markets

Skill: Recognition

21) The Tokyo exchange is the number one choice of firms looking to gain liquidity by

cross-listing their equity securities. Answer: FALSE

Topic: World Equity Markets

Skill: Recognition

22) Transaction costs for trading equity securities as measured by the bid -ask spreads are lowest on which exchange? A) NYSE

B) Nasdaq

C) London

D) Tokyo

Answer: A

Topic: World Equity Markets

Skill: Recognition

4

23) The number of foreign firms traded on the London exchange is ________ than the number

traded on the NYSE, and the costs of listing and disclosure in London are ________ those for the NYSE.

A) less than; less than

B) less than; greater than

C) greater than; less than

D) greater than; greater than

Answer: D

Topic: World Equity Markets

Skill: Recognition

24) The least liquid stock markets as identified by the authors offer little liquidity for their own

domestic firms, and are of little value to foreign firms. Answer: TRUE

Topic: Market Liquidity

Skill: Conceptual

25) Which one of the following characteristics does NOT contribute to overall market liquidity?

A) Significant market making activities.

B) Reduced transaction costs.

C) Effective crisis management.

D) All of the above contribute to efficient markets.

Answer: A

Topic: Market Liquidity

Skill: Conceptual

26) Your authors note several empirical studies that have found

A) no share price effect for foreign firms that cross -list on major U.S. exchanges. B) a positive share price effect for foreign firms that cross -list on major U.S. exchanges. C) a negative share price effect for foreign firms that cross -list on major U.S. exchanges. D) none of the above.

Answer: B

Topic: Empirical Evidence of Cross -Listing Skill: Recognition

27) The authors note empirical evidence that shows cross -listing foreign shares of stock on U.S. exchanges has a positive stock price effect. ________ for the listing of ADRs. A) There is no stock price reaction

B) There is a negative stock price reaction

C) There is a positive stock price reaction

D) None of the above is true.

Answer: D

Topic: Empirical Evidence of Cross -Listing Skill: Conceptual

5

28) Empirical evidence shows that new issues of equity by domestic firms in the U.S. market

typically has a ________ stock price reaction and new equity issues in the U.S. markets by foreign firms with segmented domestic markets have a ________ stock price reaction. A) negative; negative

B) positive; negative

C) negative; positive

D) positive; positive

Answer: C

Topic: Empirical Evidence of Cross -Listing Skill: Conceptual

29) In addition to gaining liquidity, which of the following could also be considered a legitimate

reason for cross-listing equity? A) enhance a firm's local image

B) become more familiar with the local financial community

C) get better local press coverage

D) all of the above

Answer: D

Topic: Reasons for Cross -Listing Skill: Conceptual

30) For the most part, U.S. SEC disclosure requirements are ________ stringent than other,

non-U.S. equity market rules. A) more B) less

C) as equally

D) none of the above

Answer: A

Topic: SEC Disclosure Requirements

Skill: Recognition

31) According to the U.S. school of thought, the worldwide trend toward fuller and more

standardized disclosure rules should ________ the cost of equity capital. A) increase

B) decrease

C) have no impact on D) none of the above

Answer: B

Topic: Disclosure Requirements

Skill: Recognition

32) Another school of thought about the worldwide trend toward fuller and more standardized

disclosure rules is that the cost of U.S. level equity capital disclosure A) chases away potential listers of equity.

B) is an onerous costly burden.

C) leads to fewer foreign firms cross listing in U.S. equity markets.

D) all of the above.

Answer: D

Topic: Disclosure Requirements

Skill: Recognition

6

33) Which of the following were NOT identified by the authors as an alternative instrument to

source equity in global markets?

A) sale of a directed public share issue to investors in a target market

B) private placements under SEC rule 144a

C) sale of shares to private equity funds

D) all of the above

Answer: D

Topic: Alternative Equity Sources

Skill: Recognition

34) A ________ is defined as one that is targeted at investors in a single country and

underwritten in whole or part by investment institutions from that country. A) SEC rule 144a placement

B) directed public share issue

C) Euroequity public issue

D) strategic alliance

Answer: B

Topic: Directed Public Issue

Skill: Recognition

35) The term \

A) the issuers are located in Europe.

B) the investors are located in Europe.

C) both A and B.

D) none of the above.

Answer: D

Topic: Euro Equity Market

Skill: Recognition

36) Empirical evidence has found that on average public firms that have been privatized by

issuing public equity have A) improved profitability.

B) higher debt levels.

C) lower real sales.

D) all of the above.

Answer: A

Topic: Privatizing Public Firms

Skill: Conceptual

37) Empirical evidence has found that on average public firms that have been privatized by

issuing public equity have

A) lowered capital investment levels.

B) decreased efficiency.

C) expanded their employment.

D) all of the above.

Answer: C

Topic: Privatizing Public Firms

Skill: Conceptual

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38) SEC rule 144A permits institutional buyers to trade privately placed securities without the

previous holding periods restrictions and without requiring SEC registration. Answer: TRUE

Topic: SEC Rule 144A

Skill: Recognition

39) Private equity funds (PEF) differ from traditional venture capital (VC) funds in that

A) VC operate mainly in lesser -developed countries while PEF do not. B) VC typically invest in family business whereas PEF do not.

C) VC is almost unavailable to emerging markets while PEF capital is available.

D) all of the above are true.

Answer: C

Topic: Private Equity Funds

Skill: Conceptual

40) Strategic alliances are normally formed by firms that expect to gain synergies from which of

the following?

A) economies of scale

B) economies of scope

C) complementary marketing

D) all of the above

Answer: D

Topic: Strategic Alliances

Skill: Conceptual

41) The largest equity market in the world as measured by market value or annual stock

turnover is in ________. A) Germany

B) the United States

C) Japan

D) Britain

Answer: B

Topic: Largest Equity Market

Skill: Recognition

42) The reason more foreign firms do not sell equity securities in the U.S. and list on the NYSE is

because of

A) the threat of confiscation.

B) detailed U.S. disclosure rules.

C) the relative inefficiency of U.S. equity markets.

D) the foreign exchange risk of listing in U.S. dollars.

Answer: B

Topic: Disclosure Requirements

Skill: Conceptual

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43) An MNE may cross list its shares on a foreign stock exchange so that it can

A) create a secondary market so that shares may be used to compensate top local

managers.

B) create a secondary market so that shares can be used to acquire local firms.

C) increase the firm's visibility to its customers and employees.

D) accomplish all of the above.

Answer: D

Topic: Cross Listed Shares

Skill: Conceptual

44) The expected return on equities is greater than the expected return on debt in part because

A) debt securities are serviced prior to equity securities.

B) interest payments to bondholders are generally made only if the firm makes a profit.

C) only a small portion of return to equity comes from increased capital appreciation.

D) none of the above.

Answer: A

Topic: Equity Returns

Skill: Conceptual

45) Which of the following is NOT a motivation for the use of ADRs?

A) to reduce liquidity and increase the profitability of the firm

B) to reduce a firm's visibility and avoid political scrutiny

C) to increase share price by overcoming mis -pricing in a segmented and illiquid home market

D) All of the above are motivations to use ADRs.

Answer: C

Topic: ADRs

Skill: Recognition

46) Which of the following is NOT a barrier to cross listing shares?

A) Fixed income securities such as bonds are not traded in the subject market.

B) investor relations

C) disclosure requirements

D) All are barriers to cross listing shares.

Answer: A

Topic: Cross Listing Shares

Skill: Recognition

47) The sale of a security to a small set of qualified institutional buyers is called a

A) depositary receipt.

B) private placement.

C) fixed income security.

D) none of the above.

Answer: B

Topic: Private Placement

Skill: Recognition

9

48) Negotiable certificates issued by a U.S. bank in the United States to represent the underlying

shares of stock, which are held in a trust at a custodian bank in a foreign country, are called ________. A) SDRs

B) FDRs

C) ADRs

D) IOUs

Answer: C

Topic: ADRs

Skill: Recognition

49) Which of the following is not a contributing factor to an individual equity's liquidity?

A) depth of capital availability

B) crisis management capabilities of the market itself

C) the degree to which the company is actually known and followed in the market

D) all of the above

Answer: D

Topic: Equity Liquidity

Skill: Recognition

50) An advantage to American Depositary Receipts (ADRs) over Global Registered Shares

(GRSs) is

A) ADRs are able to be traded on equity exchanges around the world in a variety of

currencies.

B) ADRs can theoretically be \

close around the world.

C) ADRs can be traded electronically and lack any type of specialized forms like those

used with GRSs.

D) None of the above, these are all advantages to trading GRSs.

Answer: D

Topic: American Depositary Receipts

Skill: Recognition

51) Cross border trading of some Canadian company securities in the U.S. preceded the

development of Global Registered Shares (GRSs) by several decades. Answer: FALSE

Topic: Global Registered Shares

Skill: Recognition

52) Economic studies have found that international cross -listing of securities across financial markets resulted in ________ abnormal returns that were ________ for firms resident in

emerging markets with a low level of legal barriers to capital flows than for firms resident in developed countries. A) positive; greater

B) positive; smaller

C) negative; greater

D) negative; smaller

Answer: A

Topic: Security Cross -listing Skill: Conceptual

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