Deck 15: Sourcing Equity Globally

Question 1

Most firms raise their initial capital in foreign markets.

Answer 1

False

Question 2

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.

Answer 2

All of the above are advantages of ADRs.

Question 3

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

Answer 3

False

Question 4

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

Question 5

Depositary receipts traded outside the United States are called ________ depositary receipts.

A)Euro
B)Global
C)American
D)none of the above

Question 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

Question 7

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

Question 8

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

Question 9

The choice of when and how to source equity 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.

Question 10

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

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

Question 11

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

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

Question 12

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.

Question 13

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.

Question 14

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

Question 15

________ 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

Question 16

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

Question 17

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.

Question 18

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, then an international bond issue in the target market, then cross listing the outstanding issues on other exchanges.
D)Cross listing the outstanding issues on other exchanges, then an international bond issue, then an international bond issue in the target market.

Question 19

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.

Question 20

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.

Question 21

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.

Question 22

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

Question 23

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

Question 24

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

A)more
B)less
C)as equally
D)none of the above

Question 25

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.

Question 26

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

Question 27

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

Question 28

The Tokyo exchange is the number one choice of firms looking to gain liquidity by cross-listing their equity securities.

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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.

Question 34

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.

Question 35

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.

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

Question 36

Because of stringent SEC rules, American companies typically do not find foreign disclosure rules to be overly onerous..

Question 37

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

Question 38

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

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.