Exam 13: Global Cost and Availability of Capital

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.

Which of the following is NOT a contributing factor to the segmentation of capital markets?

Use the information to answer the following question(s). In September 2009 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro. -Refer to Instruction 13.1. How many euros will the U.S. investor acquire with his initial $500,000 investment?

A well-diversified portfolio has about ________ of the risk of the typical individual stock.

Use the information to answer the following question(s). In September 2009 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro. -Refer to Instruction 13.1. At an average price of €60/share, how many shares of stock will the investor be able to purchase?

Which of the following is NOT a contributing factor to the segmentation of capital markets?

The weighted average cost of capital (WACC) is:

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?

In some respects, internationally diversified portfolios are the same in principle as a domestic portfolio because:

Which of the following will NOT affect a firm's beta?

Portfolio diversification can eliminate 100% of risk.

Portfolio theory assumes that investors are risk-averse. This means that investors:

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.

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:

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:

Which of the following statements is NOT true regarding MNEs when compared to purely domestic firms?

Empirical research has found that systematic risk for MNEs is greater than that for their domestic counterparts. This could be due to:

Surprisingly, empirical studies find that MNEs have a higher level of systematic risk than their domestic counterparts.

Which of the following is generally unnecessary in measuring the cost of debt?

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: