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1. Equity Sourcing Strategy. Why does the strategic path to sourcing equity start with debt?
2. Optimal Financial Structure. If the cost of debt is less than the cost of equity, why doesn’t the
firm’s cost of capital continue to decrease with the use of more and more debt?
3. Multinationals and Cash Flow Diversification. How does the multinational’s ability to diversify its
cash flows alter its ability to use greater amounts of debt?
4. Foreign Currency Denominated Debt. How does borrowing in a foreign currency change the risk
associated with debt?
5. Three Keys to Global Equity. What are the three key elements related to raising equity capital in the
global marketplace?
6. Global Equity Alternatives. What are the alternative structures available for raising equity capital on
the global market?
7. Directed Public Issues. What is a directed public issue? What is the purpose of this kind of an
international equity issuance?
8. Depositary Receipts. What is a depositary receipt? What are equity shares listed and issued in
foreign equity markets in this form?
9. GDRs, ADRs, and GRSs. What is the difference between a GDR, ADR, and GRS? How are these
differences significant?
10. Sponsored and Unsponsored. ADRs and GDRs can be sponsored or unsponsored. What does it
mean and will it matter to the investors purchasing the shares?
74 Eiteman/Stonehill/Moffett | Multinational Business Finance, 14th Edition
11. ADR Levels. Distinguish between the three levels of commitment for ADRs traded in the United
States.
Level I (“over the counter” or pink sheets) is the easiest to satisfy. It facilitates trading in foreign
12. IPOs and FOs. What is the significance of IPOs versus FOs?
13. Foreign Equity Listing and Issuance. Give five reasons why a firm might cross-list and sell its
shares on a very liquid stock exchange.
14. Cross-Listing Abroad. What are the main reasons causing firms to cross-list abroad?
15. Barriers to Cross-Listing. What are the main barriers to cross-listing abroad?
Chapter 14 Raising Equity and Debt Globally 75
© 2016 Pearson Education, Inc.
play. Reversing the logic, however, non–U.S. firms must really think twice before cross-listing in the
United States. Not only are the disclosure requirements breathtaking, but a continuous timely
quarterly information is required by U.S. regulators and investors. As a result, the foreign firm must
provide a costly continuous investor relations program for its U.S. shareholders, including frequent
“road shows” and the time-consuming personal involvement of top management.
16. Private Placement. What is a private placement? What are the comparative pros and cons of private
placement versus a pubic issue?
17. Private Equity. What is private equity, and how do private equity funds differ from traditional
venture capital firms?
Private equity funds are usually limited partnerships of institutional and wealthy individual investors
that raise their capital in the most liquid capital markets, especially the United States. They then
18. Bank Loans versus Securitized Debt. What is the advantage of securitized debt instruments sold on
a market versus bank borrowing for multinational corporations?
19. International Debt Instruments. What are the primary alternative instruments available for raising
debt on the international marketplace?
76 Eiteman/Stonehill/Moffett | Multinational Business Finance, 14th Edition
© 2016 Pearson Education, Inc.
Euronotes. A major development in international money markets was the establishment of facilities
for sales of short-term, negotiable, promissory notes—euronotes. Among the facilities for their
issuance were revolving underwriting facilities (rufs), note issuance facilities (nifs), and standby note
issuance facilities (snifs). These facilities were provided by international investment and commercial
banks. The euronote was a substantially cheaper source of short-term funds than syndicated loans
because the notes were placed directly with the investor public, and the securitized and underwritten
form allowed the ready establishment of liquid secondary markets. The banks received substantial
fees initially for their underwriting and placement services.
Euro-commercial paper. Euro-commercial paper (ECP), like commercial paper issued in domestic
markets around the world, is a short-term debt obligation of a corporation or bank. Maturities are
typically one, three, and six months. The paper is sold normally at a discount or occasionally with a
stated coupon. Although the market is capable of supporting issues in any major currency, more than
90% of issues outstanding are denominated in U.S. dollars.
Euro-medium term notes. The EMTN’s basic characteristics are similar to those of a bond, with
principal, maturity, and coupon structures and rates being comparable. The EMTN’s typical
20. Eurobond versus Foreign Bonds. What is the difference between a eurobond and a foreign bond,
and why do two types of international bonds exist?
All international bonds fall within two generic classifications, eurobonds and foreign bonds. The
distinction between categories is based on whether the borrower is a domestic or a foreign resident,
© 2016 Pearson Education, Inc.
21. Funding Foreign Subsidiaries. What are the primary methods of funding foreign subsidiaries, and
how do host government concerns affect those choices?
In general, although a minimum amount of equity capital from the parent company is required,
22. Local Norms. Should foreign subsidiaries of multinational firms conform to the capital structure
norms of the host country or to the norms of their parent’s country?
Main advantages of localization. The main advantages of a finance structure for foreign subsidiaries
that conforms to local debt norms are as follows:
78 Eiteman/Stonehill/Moffett | Multinational Business Finance, 14th Edition
Main disadvantages of localization. The main disadvantages of localized financial structures are as
follows:
An MNE is expected to have a comparative advantage over local firms in overcoming
23. Internal Financing of Foreign Subsidiaries. What is the difference between “internal” financing
and “external” financing for a subsidiary?
24. External Financing of Foreign Subsidiaries. What are the primary alternatives for the external
financing of a foreign subsidiary?
