57) A type of non-continuous exchange trading system is crowd trading.
A) Unlike a call market in which there is a common price for all trades, several bilateral trades may
take place at different prices in crowd trading.
B) Unlike a continuous market in which there is a common price for all trades, several bilateral
trades may take place at different prices.
C) Unlike a call market in which several bilateral trades may take place at different prices there is
a common price for all trades in a call market.
D) none of the options
58) Which type of trading system is desirable for actively traded issues?
A) Continuous trading systems
B) Call trading systems
C) Crowd trading systems
D) none of the options
59) Call markets and crowd trading offer advantages for ________ because they mitigate the
possibility of sparse order flow over short time periods.
A) thinly traded issues
B) actively traded issues
C) stocks but not bonds
D) none of the options
60) The over-the-counter (OTC) market is a dealer market. Almost all OTC stocks trade on the
National Association of Security Dealers Automated Quotation System (NASDAQ), which is a
computer-linked system that shows
A) the limit orders of all available counterparties.
B) the last price at which a security was sold.
C) the bid (buy) and ask (sell) prices of all dealers in a security.
D) the bid (sell) and ask (buy) prices of all dealers in a security.
61) On the NYSE, limit order prices receive preference in establishing the posted bid and ask
prices if they are more favorable than the specialist’s. Therefore,
A) a specialist must fill a limit order, if possible, from his own account before trading the flow of
public orders.
B) specialists must fill a limit order, if possible, from the flow of public orders before trading for
his own account.
C) a specialist must change his posted bid and ask prices to reflect the available limit orders.
D) none of the options
62) The large exchange markets in the United States are
A) agency markets.
B) call markets.
C) auction markets.
D) agency/auction markets.
63) “Call market” and “crowd trading” take place on
A) a non-continuous exchange trading system.
B) a continuous trading exchange system.
C) non-continuous markets and continuous markets, respectively.
D) continuous markets and non-continuous markets, respectively.
64) Comparing agency versus dealer markets, which combination of the following statements is
true:
(i) In a “dealer market,” the broker takes the client’s order through the agent, who matches it with
another public order.
(ii) In an “agency market,” the broker takes the trade through the dealer, who participates in trades
as a principal by buying and selling the security for his own account.
(iii) In an “agency market,” the broker takes the client’s order through the agent, who matches it
with another public order.
(iv) In a “dealer market,” the broker takes the trade through the dealer, who participate in trades as
a principal by buying and selling the security for his own account.
(v) An agent can be viewed as a “broker’s broker.”
(vi) A dealer can be viewed as a “broker’s broker.”
A) (i), (ii), and (v)
B) (i), (ii), and (vi)
C) (iii), (iv), and (v)
D) (iii), (iv), and (vi)
65) A market-value index
A) is calculated such that the proportion of the index a stock represents is determined by its
proportion of the total market capitalization of all stocks in the index.
B) is calculated as the average price of all the stocks in the index that trade that day, one example is
the NASDAQ.
C) is calculated like the DJIA.
D) none of the options
66) Transactions in shares of the iShares Funds will typically generate tax consequences. This is
because
A) iShares Funds are obliged to distribute portfolio gains to shareholders.
B) iShares Funds are not allowed to be held in tax-qualified accounts such as IRAs.
C) iShares Funds feature daily resettlement.
D) none of the options
67) iShares MSCI are
A) exchange traded funds that are subject to U.S. SEC and IRS diversification requirements.
B) open-end mutual funds sold OTC.
C) exchange traded funds that are NOT subject to U.S. SEC and IRS diversification requirements.
D) none of the options
68) A firm may cross-list its share to
A) establish a broader investor base for its stock.
B) establish name recognition in foreign capital markets, thus paving the way for the firm to source
new equity and debt capital from investors in different markets.
C) expose the firm’s name to a broader investor and consumer groups.
D) all of the options
69) Stock in Daimler AG, the famous German automobile manufacturer trades on both the
Frankfurt Stock Exchange in Germany and on the New York Stock Exchange. On the Frankfurt
bourse, Daimler closed at a price of €54.34 on Wednesday, March 5, 2008. On the same day,
Daimler closed in New York at $83.55 per share. To prevent arbitrage trading between the two
exchanges, the shares should trade at the same price when adjusted for the exchange rate. The $/€
exchange rate on March 5 was $1.5203/€1.00. Thus, €54.34 × $1.5203/€ = $82.61, while the
closing price in New York was $83.55. The difference is easily explainable by the fact that
A) transactions costs exceeded the price difference, so no arbitrage was possible even for market
makers.
B) no one noticed the arbitrage that day, but in a day or so the opening price will adjust.
C) the New York market closes several hours after the Frankfurt exchange, and thus market prices
or exchange rates had changed slightly.
D) none of the options
70) Companies domiciled in countries with weak investor protection can reduce agency costs
between shareholders and management
A) by moving to a better county.
B) by listing their stocks in countries with strong investor protection.
C) by voluntarily complying with the provisions of the U.S. Sarbanes-Oxley Act.
D) having a press conference and promising to be nice to their investors.
71) Advantages of cross-listing include
A) providing their shareholders with a higher degree of protection than may be available in the
home country.
B) a possible signal of the company’s commitment to shareholder rights.
C) possibly making investors, both at home and abroad, more willing to provide capital and to
increase the value of the pre-existing shares.
D) all of the options
72) “Yankee” stock offerings are
A) shares in foreign companies originally sold to U.S. investors.
B) dollar-denominated shares in foreign companies originally sold to U.S. investors.
C) U.S. stocks held abroad.
D) none of the options
73) Which factors fuel the sale of “Yankee” stock offerings?
A) Privatization by many Latin American and Eastern European government-owned companies.
B) The rapid growth in the economies of the developing world.
C) The expected large demand for new capital by Mexican companies now that NAFTA has been
approved.
D) all of the options
74) Which factors appear to be fueling the sale of Yankee stocks?
A) The push for privatization by many Latin American and Eastern European government-owned
companies.
B) The rapid growth in the economies of the developing countries.
C) The large demand for new capital by Mexican companies following approval of the North
American Free Trade Agreement.
D) all of the options
75) Following monetary union and the advent of the euro:
A) The countries of the European union have enacted common securities regulation.
B) A pan-European stock exchange has developed in London, similar to the NYSE in scope and
trading practices.
C) Development of a common securities regulations, even among the countries of the European
Union, has not yet occurred.
D) none of the options
76) The European Stock Exchange, comparable in volume to the NYSE
A) is located in Milan.
B) is located in London.
C) is located in Frankfurt.
D) none of the options
77) The first ADRs began trading ________ as a means of eliminating some of the risks, delays,
inconveniences, and expenses of trading the actual shares.
A) in 1997
B) in 1987
C) in 2017
D) in 1927
78) American Depository Receipt (ADRs) represent foreign stocks
A) denominated in U.S. dollars that trade on European stock exchanges.
B) denominated in U.S. dollars that trade on a U.S. stock exchange.
C) denominated in a foreign currency that trade on a U.S. stock exchange.
D) non-registered (bearer) securities.
79) Yankee stocks
A) often trade as ADRs and have higher risks than trading the actual shares.
B) often trade as ADRs and have lower risks than trading the actual shares.
C) are bank receipts representing a multiple of foreign shares deposited in a U.S. bank.
D) often trade as ADRs, have lower risks than trading the actual shares, and are bank receipts
representing a multiple of foreign shares deposited in a U.S. bank.
80) ADRs
A) are American Depository Receipts.
B) denominated in U.S. dollars that trade on a U.S. stock exchange.
C) are depository receipts for foreign stocks held by the U.S. depository’s custodian.
D) all of the options
81) Sponsored ADRs
A) are created by a bank at the request of the foreign company that issued the underlying security.
B) can trade on the NASDAQ.
C) can trade on the NYSE.
D) all of the options
82) ADR trades
A) clear in three days, just like trades in U.S. shares.
B) settle only after the trade in the underlying stocks clear, which can take time depending on the
clearing practices of the national market.
C) are price in the currency of the underlying security.
D) all of the options
83) On the Paris bourse, shares of Avionelle trade at €45. The spot exchange rate is $1.40 = €1.00.
What is the no-arbitrage U.S. dollar price of an Avionelle ADR? Assume that transactions costs
are negligible.
A) $63
B) $32.14
C) $45
D) $45.50
84) In the London market, Rolls-Royce stock closed at £0.875 per share. On the same day, the
British Pound sterling to the U.S. dollar spot exchange rate was £0.6366/$1.00. Rolls Royce trades
as an ADR in the OTC market in the United States. Five underlying Rolls-Royce shares are
packaged into one ADR. The no-arbitrage U.S. price of one ADR is
A) $4.87.
B) $5.87.
C) $6.87.
D) $7.87.
85) ADRs
A) frequently represent a multiple of the underlying shares.
B) can trade on the NYSE.
C) can trade on the NASDAQ.
D) all of the options
86) In the London market, Rolls-Royce stock closed at £0.875 per share. On the same day, the
British Pound sterling to the U.S. dollar spot exchange rate was £0.6366/$1.00. Rolls Royce trades
as an ADR in the OTC market in the United States. Five underlying Rolls-Royce shares are
packaged into one ADR. If the Rolls Royce ADRs were trading at $5.75 when the underlying
shares were trading in London at £0.875, ignoring transaction costs, the arbitrage trading profit
would be
A) $0.00.
B) $1.12.
C) $2.12.
D) $3.12.
87) In the Frankfurt market, Aldi stock closed at €5 per share. On the same day, the euro U.S.
dollar spot exchange rate was €.625/$1.00. Aldi trades as an ADR in the OTC market in the United
States. Five underlying Aldi shares are packaged into one ADR. The no-arbitrage U.S. price of one
ADR is
A) €25.00.
B) $15.625.
C) $40.
D) none of the options
88) Global Registered Shares
A) are created when a MNC issues shares globally.
B) purchased on one exchange (say NYSE) is fully fungible with shares purchased on another
exchange (e.g., Frankfurt Stock Exchange).
C) can trade in multiple currencies.
D) all of the options
89) Factors affecting international equity returns are
A) macroeconomic variables that influence the overall economy.
B) exchange rate changes.
C) the industrial structure of the country.
D) all of the options
90) Cross-correlations among major stock markets and exchange markets are
A) relatively high.
B) relatively low.
C) essentially perfect.
D) practically zero.
91) Macroeconomic factors affecting international equity returns include
A) exchange rate changes.
B) interest rate differentials.
C) changes in inflationary expectations.
D) all of the options
92) Changes in exchange rates
A) explain a larger portion of the variability foreign bond indexes than foreign equity indexes.
B) do not affect all foreign equity markets equally.
C) affect dollar-denominated foreign equity returns, but this risk can be hedged.
D) all of the options
93) Calculate the dollar-based percentage return an American would have if he bought a British
stock at ₤50 per share and sold it one year later at ₤60. The spot exchange rate one year ago was
$1.50 = ₤1 and the spot rate prevailing at the end of the year was $1.20 = ₤1.
A) 36 percent gain
B) 4 percent loss
C) 9.6 percent gain
D) none of the options
94) Calculate the dollar-based percentage return an American would have if he bought a German
stock at €50 per share and sold it one year later at €60. The spot exchange rate one year ago was
$1.50 = €1 and the spot rate prevailing at the end of the year was $1.70 = €1.
A) 36 percent gain
B) 26.47 percent gain
C) 9.6 percent gain
D) none of the options
95) Decompose the return an American would have if he had bought a German stock at €100 per
share and sold it one year later at €120. The spot exchange rate one year ago was $1.50 = €1 and
the spot rate prevailing at the end of the year was $1.55 = €1.
A) 24 percent total return; 20 percent asset return
B) 20 percent total return; 16.77 percent asset return
C) 16 percent total return; 20 percent asset return
D) none of the options
96) A common set of factors that affect equity returns include
A) macroeconomic variables that influence the overall economic environment in which the firm
issuing the security conducts its business.
B) exchange rate changes between the currency of the country issuing the stock and the currency
of other countries where suppliers, customers, and investors of the firm reside.
C) the industrial structure of the country in which the firm operates.
D) all of the options
97) Asprem (1989) found that changes in industrial production, employment, and imports, the
level of interest rates, and an inflation measure explained only a small portion of the variability of
equity returns for 10 European countries, but that substantially more of the variation was explained
by
A) an international market index.
B) changes in exchange rates.
C) the Herfindahl index.
D) the 4-firm concentration ratio.
98) Solnik (1984) examined the effect of exchange rate changes, interest rate differentials, the
level of the domestic interest rate, and changes in domestic inflation expectations. He found that
A) international monetary variables had only weak influence on equity returns in comparison to
domestic variables.
B) international monetary variables had a stronger influence on equity returns in comparison to
domestic variables.
C) international monetary variables had no influence at all on equity returns.
D) none of the options
99) Adler and Simon (1986) examined the exposure of a sample of foreign equity and bond index
returns to exchange rate changes. They found that
A) changes in exchange rates generally explained a smaller portion of the variability of foreign
bond indexes than foreign equity indexes.
B) changes in exchange rates generally explained none of the variability of foreign bond indexes
but completely explained the variability in foreign equity indexes.
C) changes in exchange rates generally explained a larger portion of the variability of foreign
equity indexes than foreign bond indexes.
D) changes in exchange rates generally explained a larger portion of the variability of foreign bond
indexes than foreign equity indexes.
100) Studies examining the influence of industrial structure on foreign equity returns
A) conclusively show a connection.
B) have been inconclusive.
C) show that industrialized economies outperform lesser developed economies.
D) none of the options