ECO 410 Week 8 Quiz – Strayer
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Quiz 7 Chapter 13 and 14
Chapter 13
The Global Cost and Availability
of Capital
13.1 Financial Globalization and Strategy
Multiple Choice
1) If a
firm lies within a country with ________ or ________ domestic capital markets,
it can achieve lower global cost and greater availability of capital with a
properly designed and implemented strategy to participate in international
capital markets.
A)
liquid; segmented
B)
liquid; large
C)
illiquid; segmented
D)
large; illiquid
2) Other
things equal, a firm that must obtain its long-term debt and equity in a highly
illiquid domestic securities market will probably have a:
A)
relatively low cost of capital.
B)
relatively high cost of capital.
C)
relatively average cost of capital.
D) cost
of capital that we cannot estimate from this question.
3)
Relatively high costs of capital are more likely to occur in:
A)
highly illiquid domestic securities markets.
B)
highly liquid domestic securities markets.
C)
unsegmented domestic securities markets.
D) none
of the above
4) Reasons
that firms may find themselves with relatively high costs of capital include:
A) The
firms reside in emerging countries with undeveloped capital markets.
B) The
firms are too small to easily gain access to their own national securities
market.
C) The
firms are family owned and they choose not to access public markets and lose
control of the firm.
D) all
of the above
5) Which
of the following is NOT a contributing factor to the segmentation of capital
markets?
A)
excessive regulatory control
B) perceived
political risk
C)
anticipated foreign exchange risk
D) All
of the above are contributing factors.
6) Which
of the following is NOT a contributing factor to the segmentation of capital
markets?
A) lack
of transparency
B)
asymmetric availability of information
C)
insider trading
D) All
of the above are contributing factors.
7) The
weighted average cost of capital (WACC) is:
A) the
required rate of return for all of a firm's capital investment projects.
B) the
required rate of return for a firm's average risk projects.
C) not
applicable for use by MNE.
D) equal
to 13%.
8) The
capital asset pricing model (CAPM) is an approach:
A) to
determine the price of equity capital.
B) used
by marketers to determine the price of saleable product.
C) that
can be applied only to domestic markets.
D) none
of the above
9) Which
of the following is NOT a key variable in the equation for the capital asset
pricing model?
A) the
risk-free rate of interest
B) the
expected rate of return on the market portfolio
C) the
marginal tax rate
D) All
are important components of the CAPM.
10)
________ risk is a function of the variability of expected returns of the
firm's stock relative to the market index and the measure of correlation
between the expected returns of the firm and the market.
A)
Systematic
B)
Unsystematic
C) Total
D)
Diversifiable
11)
Systematic risk:
A) is
the standard deviation of a security's return.
B) is
measured with beta.
C) is
measured with standard deviation.
D) none
of the above
12)
Which of the following is generally unnecessary in measuring the cost of debt?
A) a
forecast of future interest rates
B) the
proportions of the various classes of debt a firm proposes to use
C) the
corporate income tax rate
D) All
of the above are necessary for measuring the cost of debt.
13) The
after-tax cost of debt is found by:
A)
dividing the before-tax cost of debt by (1 - the corporate tax rate).
B)
subtracting (1 - the corporate tax rate) from the before-tax cost of debt.
C)
multiplying the before-tax cost of debt by (1 - the corporate tax rate).
D)
subtracting the corporate tax rate from the before-tax cost of debt.
14) A
firm whose equity has a beta of 1.0:
A) has
greater systematic risk than the market portfolio.
B)
stands little chance of surviving in the international financial market place.
C) has
less systematic risk than the market portfolio.
D) None
of the above is true.
15) The
difference between the expected (or required) return for the market portfolio
and the risk-free rate of return is referred to as:
A) beta.
B) the
geometric mean.
C) the
market risk premium.
D) the
arithmetic mean.
16) In
general the geometric mean will be ________ the arithmetic mean for a series of
returns.
A) less
than
B)
greater than
C) equal
to
D)
greater than or equal to
17) The
beginning share price for a security over a three-year period was $50.
Subsequent year-end prices were $62, $58 and $64. The arithmetic average annual
rate of return and the geometric average annual rate of return for this stock
was:
A) 9.30%
and 8.58% respectively.
B) 9.30%
and 7.89% respectively.
C) 9.30%
and 7.03% respectively.
D) 9.30%
and 6.37% respectively.
18) If a
company fails to accurately predict it's cost of equity, then:
A) the
firm's wacc will also be inaccurate.
B) the
firm may not be using the proper interest rate to estimate NPV.
C) the
firm may incorrectly accept or reject projects based on decisions made using
the cost of capital computed with an incorrect cost of equity.
D) All
of the above are true.
19)
Which of the following statements is NOT true regarding beta?
A) Beta
will have a value of less than 1.0 if the firm's returns are less volatile than
the market.
B) Beta
will have a value of greater than 1.0 if the firm's returns are more volatile
than the market.
C) Beta
will have a value of equal to 1.0 if the firm's returns are of equal volatility
to the market.
D) All
of the statements above are true.
20)
Which of the following will NOT affect a firm's beta?
A) the
choice of the market portfolio against which to compare the variability of a
firm's returns
B) the
choice of the risk-free security
C) the
choice of the time period used to calculate the firm's beta
D) None
of the above, because each of them affects the calculation of a firm's beta.
True/False
1) A
national securities market is segmented if the required rate of return on
securities in that market differs from comparable securities traded in other,
unsegmented markets.
2) Other
things equal, an increase in the firm's tax rate will increase the WACC for a
firm that has both debt and equity financing.
3) If a
firm's expected returns are more volatile than the expected return for the
market portfolio, it will have a beta less than 1.0.
4) The
WACC is usually used as the risk-adjusted required rate of return for new
projects that are of the same average risk as the firm's existing projects.
5) One
of the elegant beauties of international equity markets is that over the last
100 or so years, the average market risk premium is almost identical across
major industrial countries.
6) Firms
acquire debt in either the form of loans from commercial banks, or by selling
new common stock.
7) When
estimating an average corporate after-tax cost of capital, the component cost
of equity is multiplied by (1-t) to allow for the tax-deductibility of dividend
payments.
8)
International CAPM (ICAPM) assumes that there is a global market in which the
firm's equity trades, and estimates of the firm's beta, and the market risk
premium, must then reflect this global portfolio.
9) Use
of the International CAPM (ICAPM) assures that the WACC will be lower than if a
purely domestic market portfolio had been used in the estimation of the cost of
equity.
10) A
global portfolio is an index of all the securities in the world, whereas a
world portfolio represents those securities actually available to an investor.
11) The
CAPM has now become very widely accepted in global business as the preferred
method of calculating the cost of equity for a firm. As a result of this, there
is now little debate over what numerical values should be used in its
application.
12) The
geometric mean will, in all but a few extreme circumstances, yield a larger
return than the arithmetic mean return.
Essay
1) What
are the components of the weighted average cost of capital (WACC) and how do
they differ for an MNE compared to a purely domestic firm?
13.2 The Demand for Foreign Securities: The Role
of International Portfolio Investors
Multiple Choice
1) The
primary goal of both domestic and international portfolio managers is:
A) to
maximize return for a given level of risk, or to minimize risk for a given
level of return.
B) to
minimize the number of unique securities held in their portfolio.
C) to
maximize their WACC.
D) all
of the above
2) Which
of the following is NOT a portfolio diversification technique used by portfolio
managers?
A)
diversify by type of security
B)
diversify by the size of capitalization of the securities held
C)
diversify by country
D) All
of the above are diversification techniques.
3) If
all capital markets are fully integrated, securities of comparable expected
return and risk should have the same required rate of return in each national
market after adjusting for:
A) time
of day and language requirements.
B)
political risk and time lags.
C)
foreign exchange risk and political risk.
D)
foreign exchange risk and the spot rate.
4)
Capital market segmentation is a financial market imperfection caused mainly
by:
A)
government constraints.
B)
institutional practices.
C)
investor perceptions.
D) all
of the above
5)
Capital market imperfections leading to financial market segmentation include:
A)
asymmetric information between domestic and foreign-based investors.
B) high
securities transaction costs.
C)
foreign exchange risks.
D) all
of the above
6)
Capital market imperfections leading to financial market segmentation include:
A)
political risks.
B) corporate
governance differences.
C)
regulatory barriers.
D) all
of the above
7) The
authors refer to companies that have access to a ________ as MNEs, and firms
without such access are identified as ________.
A)
global cost and availability of capital; domestic firms.
B) large
domestic capital market; geographically challenged.
C) world
financial markets; antiquated.
D) none
of the above
8) The
MNE can ________ its ________ by gaining access to markets that are more liquid
and/or less segmented than its own.
A)
increase; MCC.
B)
decrease; MCC.
C)
maintain; MRR.
D) none
of the above
True/False
1)
Internationally diversified portfolios often have a lower rate of return and
almost always have a higher level of portfolio risk than their domestic counterparts.
2)
Empirical tests of market efficiency fail to show that most major national
markets are reasonably efficient.
3) A
MNEs marginal cost of capital is constant for considerable ranges in its
capital budget, but this statement cannot be made for most domestic firms.
4)
Capital market segmentation is a financial market imperfection caused mainly by
government constraints, institutional practices, and investor perceptions.
5) Since
the 1980s and 1990s, segmentation in global financial markets has been reduced.
As a result of this, the correlation among securities markets has increased,
thereby reducing, but not eliminating, the benefits of international portfolio
diversification.
13.3 The Cost of Capital for MNEs Compared to
Domestic Firms
Multiple Choice
1)
Theoretically, most MNEs should be in a position to support higher ________
than their domestic counterparts because their cash flows are diversified
internationally.
A)
equity ratios
B) debt
ratios
C)
temperatures
D) none
of the above
2)
According to your authors, diversifying cash flows internationally may help
MNEs reduce the variability of cash flows because:
A) of a
lack of competition among international firms.
B) of an
offset to cash flow variability caused by exchange rate variability.
C)
returns are not perfectly correlated between countries.
D) none
of the above
3) Which
of the following statements is NOT true regarding MNEs when compared to purely
domestic firms?
A) MNEs
tend to rely more on short and intermediate term debt.
B) MNEs
have greater foreign exchange risk.
C) MNEs
have greater costs of asymmetric information.
D) MNEs
have higher agency costs.
4)
Empirical research has found that systematic risk for MNEs is greater than that
for their domestic counterparts. This could be due to:
A) the
fact that the increase in the correlation of returns between the market and the
firm is less than the increase in the standard deviation of returns of the
firm.
B) the
fact that the decrease in the correlation of returns between the market and the
firm is greater than the increase in the standard deviation of returns of the
firm.
C) the
reduction in the correlation of returns between the firm and the market is less
than the increase in the variability of returns caused by factors such as
asymmetric information, foreign exchange risk, and the like.
D) None
of the above; systematic risk is less for MNEs than for their domestic
counterparts.
5) The
optimal capital budget:
A)
occurs where the marginal cost of capital equals the marginal rate of return of
the opportunity set of projects.
B) is
typically larger for purely domestic firms than for MNEs.
C) is an
illusion found only in international finance textbooks.
D) none
of the above
6)
Empirical studies indicate that MNEs have higher costs of capital than purely
domestic firms. This could be due to higher levels of:
A)
political risk.
B)
exchange rate risk.
C)
agency costs.
D) all
of the above
7)
Despite the theoretical elegance of this hypothesis, empirical studies have
come to the opposite conclusion.Despite the favorable effect of international
diversification of cash flows, bankruptcy risk was only about the same for MNEs
as for domestic firms. However, MNEs faced higher costs for each of the
following EXCEPT:
A)
agency costs.
B)
political risk.
C)
asymmetric information.
D) In
fact, each of these costs were higher for the MNE than for the domestic firm.
True/False
1)
Because of the international diversification of cash flows, the risk of
bankruptcy for MNEs is significantly lower than that for purely domestic firms.
2) The
opportunity set of projects is typically smaller for MNEs than for purely
domestic firms because international markets are typically specialized niches.
3)
Surprisingly, empirical studies find that MNEs have a higher level of
systematic risk than their domestic counterparts.
Essay
1) What
do theory and empirical evidence say about capital structure and the cost of
capital for MNEs versus their domestic counterparts?
13.4 The Riddle: Is the Cost of Capital Higher
for MNEs?
Multiple Choice
1)
Empirical studies indicate that WACC for an MNE is higher than for their
domestic competitors. Reasons cited for this increased cost include all of the
following EXCEPT:
A)
agency costs.
B)
foreign exchange risk.
C)
political risk.
D) All
of the above are cited as reasons for an MNE's increased WACC.
True/False
1)
Empirical studies indicate that MNEs have a lower debt/capital ratio than
domestic counterparts, indicating that MNEs have a lower cost of capital.
Chapter 14 Raising Equity and Debt Globally
14.1 Designing a Strategy to Source Capital
Globally
Multiple Choice
1) The
choice of when and how to source capital globally is usually aided early on by
the advice of:
A) an
investment banker.
B) your
stock broker.
C) a
commercial banker.
D) an
underwriter.
2)
Investment banking services include which of the following?
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
3) Which
of the following is the typical order of sourcing capital abroad?
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
4) By
cross listing and selling its shares on a foreign stock exchange, a firm
typically tries to accomplish which of the following?
A)
improve the liquidity of its existing shares
B)
increase its share price
C)
increase the firm's visibility
D) all
of the above
True/False
1) Most
firms raise their initial capital in foreign markets.
14.2 Optimal Financial Structure
Multiple Choice
1) Which
financial economists are most closely associated with the financial theory of
optimal capital structure?
A)
Modigliani and Miller
B) Fama,
Fisher, Jensen, and Roll
C) Black
and Scholes
D)
Markowitz and Sharpe
2) 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 ________.
A)
decreases; increases
B)
decreases; decreases
C)
increases; increases
D)
increases; decreases
3) One
of the most important factors in making debt less expensive than equity is:
A) the
tax deductibility of depreciation.
B) the
tax deductibility of equity.
C) the
tax deductibility of dividends.
D) the
tax deductibility of interest.
4) One
of the most important factors in making debt less expensive than equity is:
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.
5) Which
of the following is NOT a factor offsetting 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.
6) Most
financial theorists believe that the optimal capital structure is a ________
with a debt to total value ratio somewhere around ________.
A)
point; 50%
B)
point; 25%
C)
range; 30%-60%
D)
range; 10%-40%
7) Not
all firms have the same optimal capital structure. Factors that might influence
a firm's capital structure include:
A) the
industry in which it operates.
B) the
volatility of its sales and operating income.
C) the
collateral value of its assets.
D) all
of the above
8) MNEs
situated in countries with small illiquid and segmented markets are most like:
A) small
domestic U.S. firms in that they must rely on internally generated funds and
bank borrowing.
B) large
U.S. MNEs in that they are all MNEs and have worldwide markets and sources of
financing.
C) small
domestic U.S. firms in that they have a strong niche market in the U.S.
D) None
of the above is true.
9) In theory,
the MNE should support ________ debt ratios than a purely domestic firm because
their cash flows are ________.
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
10)
TropiKana Inc., a U.S firm, has just borrowed $1,000,000 to make improvements
to an Italian fruit plantation and processing plant. If the interest rate is
6.00% per year, how much interest will they pay in the first year?
A)
$6,000
B)
$60,000
C)
$600,000
D)
€60,000
11)
TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make
improvements to an Italian fruit plantation and processing plant. If the
interest rate is 5.50% per year and the Euro depreciates against the dollar
from $1.40/€ at the time the loan was made to $1.35/€ at the end of the first
year, how much interest will TropiKana pay at the end of the first year
(rounded)?
A) $55,000
B)
€74,250
C)
$74,250
D)
$77,000
12)
TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make
improvements to an Italian fruit plantation and processing plant. If the
interest rate is 5.50% per year and the Euro appreciates against the dollar
from $1.40/€ at the time the loan was made to $1.45/€ at the end of the first
year, how much interest will TropiKana pay at the end of the first year
(rounded)?
A)
$55,000
B)
$79,750
C)
$77,000
D)
$37,931
13)
TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make
improvements to an Italian fruit plantation and processing plant. If the
interest rate is 5.50% per year and the Euro appreciates against the dollar
from $1.40/€ at the time the loan was made to $1.45/€ at the end of the first
year, how much interest and principle will TropiKana pay at the end of the
first year if they repay the entire loan plus interest (rounded)?
A)
$1,529,750
B)
€1,529,750
C)
$1,055,000
D)
$1,477,000
14)
TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make
improvements to an Italian fruit plantation and processing plant. If the
interest rate is 5.50% per year and the Euro depreciates against the dollar
from $1.40/€ at the time the loan was made to $1.35/€ at the end of the first year,
how much interest and principle will TropiKana pay at the end of the first year
if they repay the entire loan plus interest (rounded)?
A)
$1,477,000
B)
$1,055,000
C)
€1,424,250
D)
$1,424,250
15)
TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make
improvements to an Italian fruit plantation and processing plant. If the
interest rate is 5.50% per year and the Euro appreciates against the dollar
from $1.40/€ at the time the loan was made to $1.45/€ at the end of the first
year, what is the before tax cost of capital if the firm repays the entire loan
plus interest (rounded)?
A) 1.73%
B) 5.50%
C)
10.50%
D) 9.27%
True/False
1)
Financial theory has at last provided us with a single optimal capital
structure for domestic firms.
2)
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.
3) 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.
4) When
a firm borrows in a foreign currency, the effective cost is the foreign
interest rate plus an adjustment for changes in the exchange rate.
5) The
domestic theory of optimal capital structure does not need to be modified for
MNEs.
6)
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.
7) A
significant advantage of borrowing foreign currency-denominated bonds is that
the borrower need not worry about relative changes in the value of the home
currency.
8) 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.
14.3 Raising Equity Globally
Multiple Choice
1) The
stock exchange with the greatest value of shares traded is:
A) NYSE.
B)
Tokyo.
C)
Nasdaq.
D)
London.
2) 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.
A) less
than; less than
B) less
than; greater than
C)
greater than; less than
D)
greater than; greater than
True/False
1) The
Tokyo exchange is the number one choice of firms looking to gain liquidity by
cross-listing their equity securities.
2) 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.
14.4 Depositary Receipts
Multiple Choice
1)
________ are negotiable certificates issued by a bank to represent the
underlying shares of stock, which are held in trust at a foreign custodian
bank.
A)
Negotiable CDs
B)
International mutual funds
C)
Depositary receipts
D)
Eurodeposits
2)
Depositary receipts traded outside the United States are called ________
depositary receipts.
A) Euro
B)
Global
C)
American
D) none
of the above
3) Each
ADR represents ________ of the shares of the underlying foreign stock.
A) a
multiple
B) 100
C) 1
D) ADRs
have nothing to do with foreign stocks.
4) Which
of the following is NOT an advantage of ADRs to U.S. shareholders?
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.
5) ADRs
that are created at the request of a foreign firm wanting its shares traded in
the United States are:
A)
facilitated.
B) unfacilitated.
C)
sponsored.
D)
unsponsored.
6) Who
pays the costs of creating a sponsored ADR?
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
7) Level
I ADRs trade primarily:
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.
8) Level
II ADRs must meet:
A) U.S.
GAAP standards.
B) home
country accounting standards.
C) both
U.S. GAAP and home country standards.
D) none
of the above
9) Level
________ is the easiest standard to satisfy for issuing ADRs.
A) 144a
B) III
C) II
D) I
10)
Level III ADR commitment applies to:
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.
True/False
1) 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.
2) An
unsponsored ADR may be initiated without the approval of the foreign firm with
the underlying stock.
3) ADRs
are considered an effective way for firms to improve the liquidity of their
stock, especially if the home market is small and illiquid.
Essay
1) 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.
14.5 Private Placement
Multiple Choice
1) Which
of the following were NOT identified by the authors as an alternative
instrument to source equity in global markets?
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 are alternatives to source equity instruments.
2) A/An
________ 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.
A) SEC
rule 144a placement
B)
directed public share issue
C)
Euroequity public issue
D)
strategic alliance
3) The
term "euro" as used in the euro equity market implies:
A) the
issuers are located in Europe.
B) the
investors are located in Europe.
C) both
A and B
D) none
of the above
4)
Private equity funds (PEF) differ from traditional venture capital (VC) funds
in that:
A) VC
operates mainly in lesser-developed countries while PEF do not.
B) VC
typically invests 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.
5)
Strategic alliances are normally formed by firms that expect to gain synergies
from which of the following?
A)
economies of scale
B)
economies of scope
C)
complementary marketing
D) all
of the above
True/False
1) SEC
rule 144A permits institutional buyers to trade privately placed securities
without the previous holding periods restrictions and without requiring SEC
registration.
14.6 Foreign Equity Listing and Issuance
Multiple Choice
1) Your
authors note several empirical studies that have found:
A) no
share price effect for foreign firms that cross-list on major U.S. exchanges.
B) a
positive share price effect for foreign firms that cross-list on major U.S.
exchanges.
C) a
negative share price effect for foreign firms that cross-list on major U.S.
exchanges.
D) none
of the above
2)
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.
A)
negative; negative
B)
positive; negative
C)
negative; positive
D)
positive; positive
3) In
addition to gaining liquidity, which of the following could also be considered
a legitimate reason for cross-listing equity?
A)
enhance a firm's local image
B)
become more familiar with the local financial community
C) get
better local press coverage
D) all
of the above
4)
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:
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
5)
According to the U.S. school of thought, the worldwide trend toward fuller and
more standardized disclosure rules should ________ the cost of equity capital.
A)
increase
B)
decrease
C) have
no impact on
D) none
of the above
6) For
the most part, U.S. SEC disclosure requirements are ________ other, non-U.S.
equity market rules.
A) more
stringent than
B) less
stringent than
C)
equally stringent to
D) none
of the above
True/False
1) The
combined impact of a new equity issue undertaken simultaneously with a cross-listing
has a more favorable impact on stock price than cross-listing alone.
2)
Because of stringent SEC rules, American companies typically do not find
foreign disclosure rules to be overly onerous.
Essay
1) What
are the two schools of thought regarding the worldwide trend toward increased
financial disclosure by publicly traded firms. Explain which school of thought
you hold to and why.
14.7 Raising Debt Globally
Multiple Choice
1)
________ are domestic currencies of one country on deposit in a second country.
A)
LIBORs
B)
Eurocurrencies
C)
Federal funds
D)
Discount window deposits
2) Of
the following, which was NOT cited by the authors as a valuable function
provided by the Eurocurrency market?
A)
Eurocurrency deposits are an efficient and convenient money market device for
holding excess corporate liquidity.
B)
Eurocurrency deposits are a tool used by the Federal Reserve to regulate the
money supply of countries that peg their currency against the U.S. dollar.
C) The
Eurocurrency market is a major source of short-term bank loans to finance
corporate working capital needs.
D) All
of the above were cited by the authors.
3)
Eurobanks are:
A) banks
where Eurocurrencies are deposited.
B) major
world banks that conduct a Eurocurrency business in addition to normal banking
activities.
C)
financial intermediaries that simultaneously bid for time deposits in and make
loans in a currency other than that of the currency of where it is located.
D) All
of the above are descriptions of a Eurobank.
4)
Eurocredits are:
A) bank
loans to MNEs and others denominated in a currency other than that of the
country where the bank is located.
B)
typically variable rate and tied to the LIBOR.
C)
usually for maturities of six months or less.
D) All
of the above are true.
5) In
general, which has the shorter maturity and is more appropriate for funding
short-term inventory needs?
A)
commercial paper
B)
Euro-Medium-Term notes (EMTNs)
C) the
international bond market
D) all
of the above
6)
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?
A)
"Union Jacks"
B)
"Royalty"
C)
"Bulldogs"
D)
"Churchill's"
7) A ________
is a bond underwritten by a syndicate from a single country, sold within in
that country, denominated in that country's currency, but the issuer is from
outside that country.
A)
foreign bond
B)
Eurobond
C)
domestic bond
D) none
of the above
True/False
1)
Eurocurrencies are NOT the same as the euro developed for the common European
currency.
2) The
Eurocurrency market continues to thrive because it is a large international
money market relatively free of governmental regulation and interference.
3)
Moody's rates international bonds at the request of the issuer with the
stipulation that Moody's will publish the ratings even if the ratings are
unfavorable.
Essay
1) The
Euro-medium-term-note (EMTN) has filled a substantial niche market in global
financing. What are the distinguishing characteristics of the EMTN and why is
it such a popular form of financing for MNEs?
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