国际财务管理答案Chap013.docx

国际财务管理答案Chap013.docx

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国际财务管理答案Chap013

CHAPTER13INTERNATIONALEQUITYMARKETS

SUGGESTEDANSWERSANDSOLUTIONSTOEND-OF-CHAPTER

QUESTIONSANDPROBLEMS

QUESTIONS

1.GetacurrentcopyofTheWallStreetJournalandfindtheDowJonesCountryIndexeslistinginSectionCofthenewspaper.Examinetheyear-to-datepercentagechangesinU.S.dollarsforthevariousnationalindexes.Howdothechangesfromyourtablecomparewiththeyear-to-datepercentagechangesfromthesampleprovidedinthetextbookasExhibit13.8?

Arethesamenationalindexespositiveandnegativeinbothlistings?

Discussyourfindings.

Answer:

Thisquestionisdesignedtoprovideanintuitiveunderstandingofthebenefitsfrominternationaldiversificationofequityportfolios.Itisveryunlikelythatthestudentwillfindmany,ifany,nationalmarketindexesthathaveyear-to-datereturnsthatareevenclosetothesamelevelasinExhibit13.8.Overdifferenttimeperiods,differentmarketforceswillaffecteachnationalmarketinuniquewaysandtheexchangerateswillbedifferent.Somemarketsthatpreviouslyyieldedapositivereturnwillnowshowanegativereturn,andviceversa.Similarly,somemarketsthathadyieldedalargepositive（negative）returnmaynowshowonlyasmallpositive（negative）return.

2.Asaninvestor,whatfactorswouldyouconsiderbeforeinvestingintheemergingstockmarketofadevelopingcountry?

Answer:

Aninvestorinemergingmarketstocksneedstobeconcernedwiththedepthofthemarketandthemarket’sliquidity.Depthofthemarketreferstotheopportunitiestoinvestinthecountry.Onemeasureofthedepthofthemarketistheconcentrationratioofacountry’sstockmarket.Theconcentrationratiofrequentlyiscalculatedtoshowthemarketvalueofthetenlargeststocktradedasafractionofthetotalmarketcapitalizationofallequitiestraded.Thehighertheconcentrationratio,thelessdeepisthemarket.Thatis,mostvalueisconcentratedinonlyafewcompanies.Whilethisdoesnotnecessarilyimplythatthelargeststocksintheemergingmarketarenotgoodinvestments,itdoes,however,suggestthattherearefewopportunitiesforinvestmentinthatcountryandthatproperdiversificationwithinthecountrymaybedifficult.Intermsofliquidity,aninvestorwouldbewisetoexaminethemarketturnoverratioofthecountry’sstockmarket.Highmarketturnoversuggeststhatthemarketisliquid,orthatthereareopportunitiesforpurchasingorsellingthestockquicklyatclosetothecurrentmarketprice.Thisisimportantbecauseliquiditymeansyoucangetinoroutofastockpositionquicklywithoutspendingmorethanyouintendedonpurchaseorreceivinglessthanyouexpectedonsale.

3.Compareandcontrastthevarioustypesofsecondarymarkettradingstructures.

Answer:

Therearetwobasictypesofsecondarymarkettradingstructures:

dealerandagency.Inadealermarket,thedealerservesasmarketmakerforthesecurity,holdinganinventoryofthesecurity.Thedealerbuysathisbidpriceandsellsathisaskedpricefromthisinventory.Allpublictradesgothroughthedealer.Inanagencymarket,publictradesgothroughtheagentwhomatchesitwithanotherpublictrade.Bothdealerandagencymarketscanbecontinuoustrademarkets,butnon-continuousmarketstendtobeonlyagencymarkets.Over-the-countertrading,specialistmarkets,andautomatedmarketsaretypesofcontinuousmarkettradingsystems.Callmarketsandcrowdtradingareeachtypesofnon-continuoustradingmarketsystems.Continuoustradingsystemsaredesirableforactivelytradedissues,whereascallmarketsandcrowdtradingofferadvantagesforsmallermarketswithmanythinlytradedissuesbecausetheymitigatethepossibilityofsparseorderflowovershorttimeperiods.

4.Discussanybenefitsyoucanthinkofforacompanyto（a）cross-listitsequitysharesonmorethanonenationalexchange,and（b）tosourcenewequitycapitalfromforeigninvestorsaswellasdomesticinvestors.

Answer:

AMNCthathasaproductmarketpresenceormanufacturingfacilitiesinseveralcountriesmaycross-listitssharesontheexchangesofthesesamecountriesbecausethereistypicallyinvestordemandforthesharesofcompaniesthatareknownwithinacountry.Additionally,acompanymaycross-listitssharesonforeignexchangestobroadenitsinvestorbaseandthereforetoincreasethedemandforitsstock.Anincreaseindemandwillgenerallyincreasethestockpriceandimproveitsmarketliquidity.Abroaderinvestorbasemayalsomitigatethepossibilityofahostiletakeover.Additional,cross-listingacompany’ssharesestablishesnamerecognitionandthusfacilitatessourcingnewequitycapitalintheseforeigncapitalmarkets.

5.Whymightitbeeasierforaninvestordesiringtodiversifyhisportfoliointernationallytobuydepositoryreceiptsratherthantheactualsharesofthecompany?

Answer:

Adepositoryreceiptcanbepurchasedontheinvestor’sdomesticexchange.Itrepresentsapackageoftheunderlyingforeignsecuritythatispricedintheinvestor’slocalcurrencyandinatradingrangethatistypicalfortheinvestor’smarketplace.Theinvestorcanpurchaseadepositoryreceiptdirectlyfromhisdomesticbroker,ratherthanhavingtodealwithanoverseasbrokerandthenecessityofobtainingforeignfundstomaketheforeignstockpurchase.Additionally,dividendsarereceivedinthelocalcurrencyratherthaninforeignfundsthatwouldneedtobeconvertedintothelocalcurrency.

6.Whydoyouthinktheempiricalstudiesaboutfactorsaffectingequityreturnsbasicallyshowedthatdomesticfactorsweremoreimportantthaninternationalfactors,and,secondly,thatindustrialmembershipofafirmwasoflittleimportanceinforecastingtheinternationalcorrelationstructureofasetofinternationalstocks?

Answer:

Whilenationalsecuritymarketshavebecomemoreintegratedinrecentyears,thereisstillatremendousamountofsegmentationthatbringsaboutthebenefittobederivedfrominternationaldiversificationoffinancialassets.Monetaryandfiscalpoliciesdifferamongcountriesbecauseofdifferenteconomiccircumstances.Theeconomicpoliciesofacountrydirectlyaffectthesecuritiestradedinthecountry,andtheywillbehavedifferentlythansecuritiestradedinanothercountrywithothereconomicpoliciesbeingimplemented.Hence,itisnotsurprisingthatdomesticfactorsarefoundtobemoreimportantthaninternationalfactorsinaffectingsecurityreturns.Similarly,industrialactivitywithinacountryisalsoaffectedbytheeconomicpoliciesofthecountry;thusfirmsinthesameindustrygroup,butfromdifferentcountries,willnotnecessarilybehavethesameinallcountries,norshouldweexpectthesecuritiesissuedbythesefirmstobehavealike.

PROBLEMS

1.OntheMilanbourse,FiatstockclosedatEUR5.84pershareonThursday,March3,2005.FiattradesasandADRontheNYSE.OneunderlyingFiatshareequalsoneADR.OnMarch3,the$/EURspotexchangeratewas$1.3112/EUR1.00.

a.Atthisexchangerate,whatistheno-arbitrageU.S.dollarpriceofoneADR?

b.Bycomparison,FiatADRsclosedat$7.61.Doyouthinkanarbitrageopportunityexists?

Solution:

a.Theno-arbitrageADRU.S.dollarpriceis:

EUR5.84x$1.3112=$7.66.

b.Itisunlikelythatanarbitrageopportunityexistsaftertransactioncosts.AdditionallytheslightdifferenceinpricesislikelyaccountedforbyadifferenceininformationcontainedinpricessincetheADRmarketinNewYorkclosedseveralhoursaftertheMilanbourse.

2.IfFiatADRsweretradingat$7whentheunderlyingsharesweretradinginMilanatEUR5.84,whatcouldyoudotoearnatradingprofit?

Usetheinformationinproblem1,above,tohelpyouandassumethattransactioncostsarenegligible.

Solution:

Asthesolutiontoproblem1shows,theno-arbitrageADRU.S.dollarpriceis$7.66.IfFiatADRsweretradingat$7,awiseinvestorwouldbuytherelativelyundervaluedADRs.SincetheADRsareaderivativesecurity,onewouldexpecttheADRstoincreaseinpricefrom$7to$7.66.Assumingthishappens,thepositioncouldbeliquidatedforaprofitof$7.66-$7.00=$0.66perADR.

MINICASE:

SANPICO’SNEWSTOCKEXCHANGE

SanPicoisarapidlygrowingLatinAmericandevelopingcountry.ThecountryisblessedwithmilesofscenicbeachesthathaveattractedtouristsbythethousandsinrecentyearstonewresorthotelsfinancedbyjointventuresofSanPicobusinessmenandmoneymenfromtheMiddleEast,Japan,andtheUnitedStates.Additionally,SanPicohasgoodnaturalharborsthatareconduciveforreceivingimportedmerchandisefromabroadandexportingmerchandiseproducedinSanPicoandothersurroundingcountriesthatlackaccesstothesea.Becauseoftheseadvantages,manynewbusinessesarebeingstartedinSanPico.

Presently,stockistradedinacrampedbuildinginLaCobijio,thenation’scapital.Admittedly,theSanPicoStockExchangesystemisratherarchaic.Twiceadayanofficialoftheexchangewillcalloutthenameofeachofthe43companieswhosestocktradesontheexchange.Brokerswantingtobuyorsellsharesfortheirclientsthenattempttomakeatradewithoneanother.Thiscrowdtradingsystemhasworkedwellforoveronehundredyears,butthegovernmentdesirestoreplaceitwithanewmodernsystemthatwillallowgreaterandmorefrequentopportunitiesfortradingineachcompany,andwillallowfortradingthesharesofthemanynewstart-upcompaniesthatareexpectedtotradeinthesecondarymarket.Additionally,thegovernmentadministrationisrapidlyprivatizingmanystate-ownedbusinessesinanattempttofostertheirefficiency,obtainforeignexchangefromthesale,andconvertthecountrytoamorecapitalistecon