Question 1

Of the following, which is NOT an external source of financing for the foreign subsidiary?

Accepted Answer

A)  borrowing from sister subsidiaries 
B)  borrowing from commercial banks in the parent country 
C)  selling new stock to local shareholders 
D)  All of the above are external sources of financing for the foreign subsidiary. 
A)  borrowing from sister subsidiaries 
B)  borrowing from commercial banks in the parent country 
C)  selling new stock to local shareholders 
D)  All of the above are external sources of financing for the foreign subsidiary.

Question 2

Empirical evidence has found that on average public firms that have been privatized by issuing public equity have

Accepted Answer

A)  lowered capital investment levels. 
B)  decreased efficiency. 
C)  expanded their employment. 
D)  all of the above. 
A)  lowered capital investment levels. 
B)  decreased efficiency. 
C)  expanded their employment. 
D)  all of the above.

Question 3

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

Accepted Answer

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

Question 4

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.

Accepted Answer

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. 
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.

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

Level I ADRs trade primarily

Accepted Answer

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. 
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.

Question 7

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

Accepted Answer

A)  NYSE 
B)  Nasdaq 
C)  London 
D)  Tokyo 
A)  NYSE 
B)  Nasdaq 
C)  London 
D)  Tokyo

Question 8

Of the following, which is NOT considered to be an advantage to MNEs of having a financial structure adhere to local debt norms?

Accepted Answer

A)  A localized financial structure reduces criticism of foreign subsidiaries that have previously used a different capital structure. 
B)  A localized financial structure helps management evaluate return on equity investment relative to local competitors in the same industry. 
C)  MNE have a competitive advantage over the locals, thus by using the local capital structure, the MNE is even stronger. 
D)  All of the above are noted as advantages to having a localized capital structure. 
A)  A localized financial structure reduces criticism of foreign subsidiaries that have previously used a different capital structure. 
B)  A localized financial structure helps management evaluate return on equity investment relative to local competitors in the same industry. 
C)  MNE have a competitive advantage over the locals, thus by using the local capital structure, the MNE is even stronger. 
D)  All of the above are noted as advantages to having a localized capital structure.

Question 9

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

Accepted Answer

A)  lower; more stable due to international diversification 
B)  lower; less stable due to international diversification 
C)  higher; more stable due to international diversification 
D)  higher; less stable due to international diversification 
A)  lower; more stable due to international diversification 
B)  lower; less stable due to international diversification 
C)  higher; more stable due to international diversification 
D)  higher; less stable due to international diversification

Question 10

Empirical evidence has found that on average public firms that have been privatized by issuing public equity have

Accepted Answer

A)  improved profitability. 
B)  higher debt levels. 
C)  lower real sales. 
D)  all of the above. 
A)  improved profitability. 
B)  higher debt levels. 
C)  lower real sales. 
D)  all of the above.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 change in the firm's WACC after the international equity issue?

Accepted Answer

A)  2.61% 
B)  1.74% 
C)  0.63% 
D)  There is no change in the firm's WACC. 
A)  2.61% 
B)  1.74% 
C)  0.63% 
D)  There is no change in the firm's WACC.

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

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.

Accepted Answer

A)  less than; less than 
B)  less than; greater than 
C)  greater than; less than 
D)  greater than; greater than 
A)  less than; less than 
B)  less than; greater than 
C)  greater than; less than 
D)  greater than; greater than

Question 15

Internal sources of funds for a foreign subsidiary of a MNE may come from the parent company but not from a sister subsidiary. Funding from sister subsidiaries are considered external funding.

Accepted Answer

A) True 
 B)False

Question 16

Financial practice suggests that there is a range for an optimal capital structure for a firm within an industry rather than a specific optimal ratio of debt to equity.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  an investment banker. 
B)  your stock broker. 
C)  a commercial banker. 
D)  the internal revenue service. 
A)  an investment banker. 
B)  your stock broker. 
C)  a commercial banker. 
D)  the internal revenue service.

Question 18

Who pays the costs of creating a sponsored ADR?

Accepted Answer

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 
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

Question 19

Most firms raise their initial capital in foreign markets.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Of the following, which is NOT an external source of financing for the foreign subsidiary?

Empirical evidence has found that on average public firms that have been privatized by issuing public equity have

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

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.

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.

Level I ADRs trade primarily

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

Of the following, which is NOT considered to be an advantage to MNEs of having a financial structure adhere to local debt norms?

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

Empirical evidence has found that on average public firms that have been privatized by issuing public equity have

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

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.

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.

Internal sources of funds for a foreign subsidiary of a MNE may come from the parent company but not from a sister subsidiary. Funding from sister subsidiaries are considered external funding.

Financial practice suggests that there is a range for an optimal capital structure for a firm within an industry rather than a specific optimal ratio of debt to equity.

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

Who pays the costs of creating a sponsored ADR?

Most firms raise their initial capital in foreign markets.

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

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 13: Raising Equity and Debt Globally

Of the following, which is NOT an external source of financing for the foreign subsidiary?

Empirical evidence has found that on average public firms that have been privatized by issuing public equity have

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

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.

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.

Level I ADRs trade primarily

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

Of the following, which is NOT considered to be an advantage to MNEs of having a financial structure adhere to local debt norms?

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

Empirical evidence has found that on average public firms that have been privatized by issuing public equity have

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

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.

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.

Internal sources of funds for a foreign subsidiary of a MNE may come from the parent company but not from a sister subsidiary. Funding from sister subsidiaries are considered external funding.

Financial practice suggests that there is a range for an optimal capital structure for a firm within an industry rather than a specific optimal ratio of debt to equity.

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

Who pays the costs of creating a sponsored ADR?

Most firms raise their initial capital in foreign markets.

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

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

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

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.