Question 1

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

Accepted Answer

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. B

Question 2

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

Accepted Answer

A) True 
 B)False  False

Question 3

Most firms raise their initial capital in foreign markets.

Accepted Answer

A) True 
 B)False  False

Question 4

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.

Accepted Answer

A)   SEC rule 144a placement
B)   directed public share issue
C)   Euroequity public issue
D)   strategic alliance

Question 5

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 6

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?

Accepted Answer

A)   9.15%
B)   11.76%
C)   12.00 %
D)   15.40%

Question 7

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

Accepted Answer

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.

Question 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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 ________.

Accepted Answer

A)   SDRs
B)   FDRs
C)   ADRs
D)   IOUs

Question 11

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 12

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.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

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

Question 14

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

Accepted Answer

A)   ready access to capital
B)   many highly qualified workers
C)   good infrastructure
D)   all are contributing factors

Question 15

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

Accepted Answer

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

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

The answer of ADRs are a popular investment tool for...

Question 17

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

Accepted Answer

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

Question 18

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

Accepted Answer

A)   Germany
B)   the United States
C)   Japan
D)   Britain

Question 19

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

Accepted Answer

A)   increase
B)   decrease
C)   have no impact on
D)   none of the above

Question 20

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.

Accepted Answer

A)   negative; negative
B)   positive; negative
C)   negative; positive
D)   positive; positive

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.

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?

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.