Exam 14: Funding the Multinational Firm

Depositary Receipts intra-market trades account for more than 90% of all DR trading today.

Financial theory has at last provided us with a single optimal capital structure for domestic firms.

Portfolio diversification of domestic firms reduces risk because cash flows are not perfectly correlated. The same reasoning is often argued for MNEs diversifying into international markets.

One of the benefits of investing in Global Registered Shares (GRS) is that GRS allow to invest in foreign companies without foreign exchange risk.

In theory, the MNE should support ________ debt ratios than a purely domestic firm because their cash flows are ________.

Eurobanks are:

TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 5.50% per year and the Euro appreciates against the dollar from $1.40/€ at the time the loan was made to $1.45/€ at the end of the first year, what is the before tax cost of capital if the firm repays the entire loan plus interest (rounded)?

MNEs situated in countries with small illiquid and segmented markets are most like:

In theory multinational firms are in a better position than domestic firms to support higher debt ratios. Provide an argument as to why this could be true and discuss the empirical research findings about U.S.-based MNEs.

________ are domestic currencies of one country on deposit in a second country.

Not all firms have the same optimal capital structure. Factors that might influence a firm's capital structure include:

Which of the following is NOT a factor offsetting the tax advantage of debt as a source of financing?

The worldwide trend toward fuller and more standardized disclosure rules should ________ the cost of equity capital.

A/An ________ 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.

Which of the following high profile euroequity issues was NOT also a privatization?

Once a firm has "gone public," it is open to a considerably higher level of public scrutiny.

For most firms, the cost of capital decreases to a low point as the firm ________ debt financing. At some point beyond this optimal level, the cost of capital increases as the amount of debt ________.

Level II ADRs must meet:

________ are negotiable certificates issued by a bank to represent the underlying shares of stock, which are held in trust at a foreign custodian bank.

The ultimate step sourcing capital abroad would be to place a directed equity issue in a prestigious target market or a euroequity issue in global equity markets.