Question 1

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

Accepted Answer

A) increased agency costs 
B) increased probability of financial distress (bankruptcy)due to fixed interest payments 
C) alternative tax shields to those supplied by interest payments 
D) All of the above offset the tax advantage of debt as a source of financing. 
A) increased agency costs 
B) increased probability of financial distress (bankruptcy)due to fixed interest payments 
C) alternative tax shields to those supplied by interest payments 
D) All of the above offset the tax advantage of debt as a source of financing. D

Question 2

In part because of access to global markets, MNEs are better able than their domestic counterparts to maintain their desired debt ratio even when raising new capital.

Accepted Answer

A) True 
 B)False  True

Question 3

For firms to raise capital in international markets, it is more important to adhere to capital structure ratios similar to those found in the United States and United Kingdom than to those in the firm's home country.

Accepted Answer

A) True 
 B)False  True

Question 4

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 ________.

Accepted Answer

A) decreases; increases 
B) decreases; decreases 
C) increases; increases 
D) increases; decreases 
A) decreases; increases 
B) decreases; decreases 
C) increases; increases 
D) increases; decreases

Question 5

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

Accepted Answer

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 in less prestigious markets, then an international bond issue in the target market, and ultimately a eurobond issue 
D) cross listing the outstanding issues on other exchanges, then an international bond issue, then an international bond issue in the target market 
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 in less prestigious markets, then an international bond issue in the target market, and ultimately a eurobond issue 
D) cross listing the outstanding issues on other exchanges, then an international bond issue, then an international bond issue in the target market

Question 6

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

Accepted Answer

A) a multiple 
B) 100 
C) 1 
D) ADRs have nothing to do with foreign stocks. 
A) a multiple 
B) 100 
C) 1 
D) ADRs have nothing to do with foreign stocks.

Question 7

Foreign bonds sold in the United States are nicknamed "Yankee bonds," foreign bonds sold in Japan are called "Samurai bonds." What are foreign bonds sold in the United Kingdom nicknamed?

Accepted Answer

A) "Union Jacks" 
B) "Royalty" 
C) "Bulldogs" 
D) "Churchill's" 
A) "Union Jacks" 
B) "Royalty" 
C) "Bulldogs" 
D) "Churchill's"

Question 8

For the most part, U.S. SEC disclosure requirements are ________ other, non-U.S. equity market rules.

Accepted Answer

A) more stringent than 
B) less stringent than 
C) equally stringent to 
D) none of the above 
A) more stringent than 
B) less stringent than 
C) equally stringent to 
D) none of the above

Question 9

Level III ADR commitment applies to:

Accepted Answer

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. 
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.

Question 10

One of the most important factors in making debt less expensive than equity is:

Accepted Answer

A) the tax deductibility of depreciation. 
B) the tax deductibility of equity. 
C) the tax deductibility of dividends. 
D) the tax deductibility of interest. 
A) the tax deductibility of depreciation. 
B) the tax deductibility of equity. 
C) the tax deductibility of dividends. 
D) the tax deductibility of interest.

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) LIBORs 
B) Eurocurrencies 
C) Federal funds 
D) Discount window deposits 
A) LIBORs 
B) Eurocurrencies 
C) Federal funds 
D) Discount window deposits

Question 14

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

Accepted Answer

A) Negotiable CDs 
B) International mutual funds 
C) Depositary receipts 
D) Eurodeposits 
A) Negotiable CDs 
B) International mutual funds 
C) Depositary receipts 
D) Eurodeposits

Question 15

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 16

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.

Accepted Answer

Depositary receipts are negotiable certi

Question 17

By cross listing and selling its shares on a foreign stock exchange, a firm typically tries to accomplish which of the following?

Accepted Answer

A) improve the liquidity of its existing shares 
B) increase its share price 
C) increase the firm's visibility 
D) all of the above 
A) improve the liquidity of its existing shares 
B) increase its share price 
C) increase the firm's visibility 
D) all of the above

Question 18

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 19

One of the most important factors in making debt less expensive than equity is:

Accepted Answer

A) the seniority of equity obligations to debt claims. 
B) the tax deductibility of dividends. 
C) the tax deductibility of equity. 
D) the seniority of debt obligations to equity claims. 
A) the seniority of equity obligations to debt claims. 
B) the tax deductibility of dividends. 
C) the tax deductibility of equity. 
D) the seniority of debt obligations to equity claims.

Question 20

ADRs are considered an effective way for firms to improve the liquidity of their stock, especially if the home market is small and illiquid.

Accepted Answer

A) True 
 B)False

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

In part because of access to global markets, MNEs are better able than their domestic counterparts to maintain their desired debt ratio even when raising new capital.

For firms to raise capital in international markets, it is more important to adhere to capital structure ratios similar to those found in the United States and United Kingdom than to those in the firm's home country.

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 .

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

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

Foreign bonds sold in the United States are nicknamed "Yankee bonds," foreign bonds sold in Japan are called "Samurai bonds." What are foreign bonds sold in the United Kingdom nicknamed?

For the most part, U.S. SEC disclosure requirements are ________ other, non-U.S. equity market rules.

Level III ADR commitment applies to:

One of the most important factors in making debt less expensive than equity is:

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.

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

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

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

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.

By cross listing and selling its shares on a foreign stock exchange, a firm typically tries to accomplish which of the following?

Level I ADRs trade primarily:

One of the most important factors in making debt less expensive than equity is:

ADRs are considered an effective way for firms to improve the liquidity of their stock, especially if the home market is small and illiquid.

Current Multinational Challenges and the Global Economy

Corporate Ownership, Goals, and Governance

The International Monetary System

The Balance of Payments

The Continuing Global Financial Crisis

The Foreign Exchange Theory and Markets

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Multinational Tax Management

International Portfolio Theory and Diversification

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Working Capital Management

International Trade Finance

Filters

Exam 14: Raising Equity and Debt Globally

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

In part because of access to global markets, MNEs are better able than their domestic counterparts to maintain their desired debt ratio even when raising new capital.

For firms to raise capital in international markets, it is more important to adhere to capital structure ratios similar to those found in the United States and United Kingdom than to those in the firm's home country.

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 ________.

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

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

Foreign bonds sold in the United States are nicknamed "Yankee bonds," foreign bonds sold in Japan are called "Samurai bonds." What are foreign bonds sold in the United Kingdom nicknamed?

For the most part, U.S. SEC disclosure requirements are ________ other, non-U.S. equity market rules.

Level III ADR commitment applies to:

One of the most important factors in making debt less expensive than equity is:

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.

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

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

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

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.

By cross listing and selling its shares on a foreign stock exchange, a firm typically tries to accomplish which of the following?

Level I ADRs trade primarily:

One of the most important factors in making debt less expensive than equity is:

ADRs are considered an effective way for firms to improve the liquidity of their stock, especially if the home market is small and illiquid.

Current Multinational Challenges and the Global Economy

Corporate Ownership, Goals, and Governance

The International Monetary System

The Balance of Payments

The Continuing Global Financial Crisis

The Foreign Exchange Theory and Markets

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination and Forecasting

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Multinational Tax Management

International Portfolio Theory and Diversification

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Working Capital Management

International Trade Finance

Filters

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 .