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.
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).
14.5 Private Placement
1) Which of the following was 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) By cross-listing shares on a foreign exchange, you can expect:
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
4) 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
5) 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) SEC rule 144A permits institutional buyers to trade privately placed securities without the
previous holding periods restrictions and without requiring SEC registration.
7) 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.
8) Private equity funds appear to have a longer time horizon than traditional venture capital
funds.
9) The least liquid stock markets offer little liquidity for their own domestic firms, and are of
little value to foreign firms.
10) Private equity funds differ from traditional venture capital funds. List and discuss three
differences between them.
14.6 Raising Debt Globally
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
8) The eurobond market owes its existence to all of the following reasons unique factors
EXCEPT:
A) free bond ratings.
B) the absence of regulatory interference.
C) less stringent disclosure practices.
D) favorable tax treatment.
9) Eurocurrencies are NOT the same as the euro developed for the common European currency.
10) The Eurocurrency market continues to thrive because it is a large international money market
relatively free of governmental regulation and interference.
11) 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.
12) Eurobonds offer tax anonymity.
13) Eurobonds are usually issued in registered form.
14) Moody’s assesses the investor’s risk caused by changing exchange rates in the investment.
15) 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?
14.7 Financing Foreign Subsidiaries
1) External sources of financing available for foreign subsidiaries include all of the following
EXCEPT:
A) debt from the parent’s country.
B) debt from countries outside the parent’s country.
C) local or global equity.
D) intercompany and intracompany loans.
2) The financial structure and financing of a foreign subsidiary change over time as it passes
through the following stages of its business life cycle EXCEPT:
A) maturing.
B) growth.
C) startup.
D) discovery.
3) Internal financing includes all potential sources of fund arising from the MNE itself.
4) External financing includes debt from any source that is not the MNE itself and equity from
any potential partner.
5) In early stages of a foreign subsidiary’s life, local host country debt is the only possible source
of funding.
6) Multinationals often strive to maximize the amount of equity from the parent company in
foreign subsidiaries in order to reduce capital risk.
7) Host country government would, in the extreme, prefer all inward investment be financed with
local debt.