Exam 13: Sourcing Equity Capital Globally

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

Cross border trading of some Canadian company securities in the U.S. preceded the development of Global Registered Shares (GRSs) by several decades.

Most firms raise their initial capital in foreign markets.

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.

SEC rule 144A permits institutional buyers to trade privately placed securities without the previous holding periods restrictions and without requiring SEC registration.

Wallet Drug Company has just recently raised money abroad for the first time in the history of the firm. Prior to the recent equity issue abroad, the firm had a D/V ratio of 40%, an effective tax rate of 30%, a before-tax cost of debt of 9%, and a domestic beta of 1.3. The expected return on the market portfolio was 13% and the risk-free rate was 5%. After the equity issue, Wallet Drug has a D/V ratio of 50%, their after-tax cost of debt has not changed, nor has the effective tax rate, the firm's international beta is 1.0, the expected return on the market portfolio is only 12%, and the risk-free rate is still 5%. What is the firm's new cost of equity after the international issue?

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

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

An unsponsored ADR may be initiated without the approval of the foreign firm with the underlying stock.

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 ________.

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.

The Sarbanes-Oxley Act in the U.S. has encouraged more and more international firms to list their securities in the US and pulled firms away from London.

Which of the following were NOT identified by the authors as an alternative instrument to source equity in global markets?

Which of the following are not contributing factors to the dominance of the London and New York Stock exchanges?

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

ADRs are a popular investment tool for many U.S. investors. In recent years several alternatives for investing in foreign equity securities have become available for U.S. investors, yet ADRs remain popular. Define what an ADR is and provide at least three examples of the advantages they may hold over alternative foreign investment vehicles for U.S. investors.

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

The largest equity market in the world as measured by market value or annual stock turnover is in ________.

According to the U.S. school of thought, the worldwide trend toward fuller and more standardized disclosure rules should ________ the cost of equity capital.

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.