3) 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
4) A multinational firm that proceeds to raise capital outside of its domestic market is ultimately
in search of an issuance – the IPO or SPO. But often issuances must be preceded by listings, in
which the shares are traded on an exchange and, therefore, in a specific country market. The
listing serves the following purposes EXCEPT:
A) gaining name recognition.
B) reducing the compliance costs.
C) gaining visibility.
D) preparing the market for an issuance.
5) The public pathway to raise equity capital outside of its home market includes the following
EXCEPT:
A) Euroequity issue.
B) Strategic Partner/Alliance.
C) shares sold to a specific market or exchange.
D) seasoned offering.
6) The initial issuance of shares by a company in an IPO typically represents no more than:
A) 25%.
B) 35%.
C) 45%.
D) 55%.
7) Which of the following is a characteristic of an euroequity issue?
A) an initial public offering of euro denominated securities
B) the issuers are located in Europe
C) the investors are located in Europe
D) is an offering on multiple exchanges in multiple countries at the same time
8) Which of the following high profile euroequity issue was NOT also a privatization?
A) British Telecommunications
B) Gucci
C) YPF Sociedad Anónima
D) Telefonos de Mexico
9) Once a firm has “gone public,” it is open to a considerably higher level of public scrutiny.
10) A distinction about the publicly traded firm’s shares is that they raise capital with the daily
rise and fall of their share prices.
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11) A euroequity issue is an initial public offering of euro denominated securities.
12) List and discuss three public pathway strategies for a MNE for raising equity capital outside
its home market.
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.
11) 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.
12) An unsponsored ADR may be initiated without the approval of the foreign firm with the
underlying stock.
13) ADRs are considered an effective way for firms to improve the liquidity of their stock,
especially if the home market is small and illiquid.
14) Depositary Receipts intra-market trades account for more than 90% of all DR trading today.
15) One of the benefits of investing in Global Registered Shares (GRS) is that GRS allow to
invest in foreign companies without foreign exchange risk.
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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.
17) List and describe three differences and advantages of Global Registered Shares (GRS) over
American Depositary Receipts (ADRs).
Answer: Depositary receipts are negotiable certificates issued by a bank to represent the
underlying shares of stock held in trust at a foreign custodian bank. Those receipts traded in the
14.6 Private Placement
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) 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.
3) SEC rule 144A permits institutional buyers to trade privately placed securities without the
previous holding periods restrictions and without requiring SEC registration.
4) Private equity funds are best known for buying control of private owned firms, taking them
publicly, improving management, and then reselling them after one to three years.