Question 1

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

Question 2

Private equity funds (PEF) differ from traditional venture capital (VC) funds in that

Accepted Answer

A)   VC operate mainly in lesser-developed countries while PEF do not.
B)   VC typically invest in family business whereas PEF do not.
C)   VC is almost unavailable to emerging markets while PEF capital is available.
D)   All of the above are true. C

Question 3

The Eurocurrency market continues to thrive because it is a large international money market relatively free of governmental regulation and interference.

Accepted Answer

A) True 
 B)False  True

Question 4

The MNE in an effort to minimize the cost of external funds should choose ________ funds to minimize ________.

Accepted Answer

A)   internal; debt financing
B)   internal; taxes and political risk
C)   external; debt financing
D)   external; taxes and political risk

Question 5

The domestic theory of optimal capital structure does not need to be modified for MNEs.

Accepted Answer

A) True 
 B)False

Question 6

Another school of thought about the worldwide trend toward fuller and more standardized disclosure rules is that the cost of U.S. level equity capital disclosure

Accepted Answer

A)   chases away potential listers of equity.
B)   is an onerous costly burden.
C)   leads to fewer foreign firms cross listing in U.S. equity markets.
D)   all of the above.

Question 7

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.

Question 8

One of the reasons why venture capital is not very present in the emerging markets is

Accepted Answer

A)   emerging market governments are giving tax incentives for foreign capital.
B)   the illiquid nature of emerging market capital markets offering limited exit alternatives.
C)   the increasing globalization and integration of financial markets.
D)   the increasing number of IPOs in the BRIC countries.

Question 9

The term "euro" as used in the euro equity market implies

Accepted Answer

A)   the issuers are located in Europe.
B)   the investors are located in Europe.
C)   both A and B.
D)   none of the above.

Question 10

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)   None of the above are factors.

Question 11

Private placement represents

Accepted Answer

A)   sale of a security to qualified institutional buyers.
B)   taking the firm private via international private equity fund.
C)   placing ADRs on the public equity markets.
D)   None of the above

Question 12

How does market segmentation impact the effect on share prices from cross-listing on foreign stock exchanges?

Accepted Answer

The answer of How does market segmentation impact the effect...

Question 13

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

Question 14

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.

Question 15

________ 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

Question 16

ADRs that are created at the request of a foreign firm wanting its shares traded in the United States are

Accepted Answer

A)   facilitated.
B)   unfacilitated.
C)   sponsored.
D)   unsponsored.

Question 17

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 18

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 was the firm's WACC prior to the issue of new common stock abroad?

Accepted Answer

A)   9.15%
B)   11.76%
C)   13%
D)   15.4%

Question 19

Investment banking services include which of the following?

Accepted Answer

A)   advising when a security should be cross-listed
B)   preparation of stock prospectuses
C)   help to determine the price of the issue
D)   all of the above

Question 20

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

Accepted Answer

A)   equity in the form of cash from the parent firm
B)   equity in the form of real goods from the parent
C)   debt in the form of loans from the same commercial bank used by the parent
D)   All of the above are internal sources of financing for the foreign subsidiary.

Exam 13: Raising Equity and Debt Globally

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

Private equity funds (PEF) differ from traditional venture capital (VC) funds in that

The Eurocurrency market continues to thrive because it is a large international money market relatively free of governmental regulation and interference.

The MNE in an effort to minimize the cost of external funds should choose funds to minimize .

The domestic theory of optimal capital structure does not need to be modified for MNEs.

Another school of thought about the worldwide trend toward fuller and more standardized disclosure rules is that the cost of U.S. level equity capital disclosure

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

One of the reasons why venture capital is not very present in the emerging markets is

The term "euro" as used in the euro equity market implies

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

Private placement represents

How does market segmentation impact the effect on share prices from cross-listing on foreign stock exchanges?

Who pays the costs of creating a sponsored ADR?

Level III ADR commitment applies to

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

ADRs that are created at the request of a foreign firm wanting its shares traded in the United States are

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

Investment banking services include which of the following?

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