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In general, Standard & Poors Emerging Markets Data Base classified a stock market
as emerging if
a) It is located in a low- or middle-income economy as defined by the World Bank
b) Its investable market capitalization is low relative to its most recent GNI figures
c) a) or b)
d) none of the above
Answer: c)
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As a measure of liquidity
a) Generally, the lower the turnover, the greater the liquidity of a secondary stock
market.
b) Generally, the higher the turnover, the greater the liquidity of a secondary stock
market.
c) The more a financial asset gurgles when shook the greater the liquidity
d) None of the above
Answer: b)
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Many of the small foreign equity markets (e.g. Chile, Sri Lanka)
a) Have poor liquidity at present.
b) Are very liquid stock markets, since the poor people living there are eager to sell
their securities.
c) Have fairly high turnover ratios indicating strong liquidity.
d) None of the above
Answer: a)
10 In general if an investment
a) Has poor liquidity it should offer investors a liquidity premium.
b) Can be sold fairly quickly at a fair price, it has good liquidity
c) a) and b)
d) None of the above
Answer: c)
11 Many of the larger foreign equity markets (e.g. Korea, India)
a) Have poor liquidity at present.
b) Are very liquid stock markets, since the poor people living there are eager to sell
their securities.
c) Have high turnover ratios
d) None of the above
Answer: c)
Measures of Market Concentration
12 The more concentrated a national stock market is
a) The greater opportunity a global investor has to include shares from that county in
an internationally diversified portfolio.
b) The less opportunity a global investor has to include shares from that county in an
internationally diversified portfolio.
c) The broader the investor base across a number of different shares and industries.
d) None of the above
Answer: b)
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iShares MSCI
27 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 above
Answer: a)
Trading in International Equities
Cross-Listing of Shares
28 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 firms name to a broader investor and consumer groups
d) All of the above
Answer: d)
29 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.
Answer: b)
30 Benetton, an Italian clothier, is listed on the New York Stock Exchange.
a) This decision provides their shareholders with a higher degree of protection than is
available in Italy.
b) This decision can be a signal of the companys commitment to shareholder rights.
c) This may make investors both in Italy and abroad more willing to provide capital and to
increase the value of the pre-existing shares.
d) All of the above
Answer: d)
Yankee Stock Offerings
31 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 above.
Answer: b)
32 Which factors fuel the sale of Yankee stock offerings?
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37 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. depositorys custodian
d) all of the above
Answer: d)
38 Sponsored ADRs
a) 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 above
Answer: d)
39 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 above
Answer: a)
40 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 ADR? Assume that transactions costs
are negligible.
a) $63
b) $32.14
c) $45
d) $45.50
Answer: a)
41 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 above
Answer: d)
Rationale: Sponsored ADRs trade on NASDAQ or major exchanges.
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42 In the London market, Rolls-Royce stock closed at 0.875 per share on Thursday,
April 17, 2005. Rolls Royce trades as an ADR in the OTC market in the United
States. Five underlying Rolls-Royce shares are packaged into one ADR. On April, 17,
2005, the British Pound sterling to the U.S. spot exchange rate was 0.6366/$1.00.
The no-arbitrage U.S. price of one ADR is:
a) $4.87
b) $5.87
c) $6.87
d) $7.87
Answer: c)
Rationale: Equivalent value of one ADR in British pounds = 5 0.875 = 4.38
Dollar value of one ADR = 4.38/0.6366 = $6.87
43 In the London market, Rolls-Royce stock closed at 0.875 per share on Thursday,
April 17, 2005. Rolls Royce trades as an ADR in the OTC market in the United
States. Five underlying Rolls-Royce shares are packaged into one ADR. On April, 17,
2005, the British Pound sterling to the U.S. spot exchange rate was 0.6366/$1.00. 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
Answer: b)
Rationale: $6.87 - $5.75 = $1.12
Global Registered Shares
44 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 above
Answer: d)
Factors Affecting International Equity Returns
45 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 above
Answer: d)
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