Ch013 International Equity Markets.docx

Ch013 International Equity Markets.docx

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Ch013InternationalEquityMarkets

Eun&Resnick4e

CHAPTER13InternationalEquityMarkets

AStatisticalPerspective

MarketCapitalizationofDevelopedCountries

MarketCapitalizationofDevelopingCountries

MeasuresofLiquidity

MeasuresofMarketConcentration

MarketStructure,TradingPractices,andCosts

InternationalEquityMarketBenchmarks

iSharesMSCI

InternationalFinanceinPractice:

ForeignInterestinSouthAfricaTakesOff

TradinginInternationalEquities

Cross-ListingofShares

YankeeStockOfferings

TheEuropeanStockMarket

AmericanDepositoryReceipts

GlobalRegisteredShares

FactorsAffectingInternationalEquityReturns

MacroeconomicFactors

ExchangeRates

IndustrialStructure

Summary

MINICASE:

SanPico’sNewStockExchange

AStatisticalPerspective

1A“primary”stockmarketis

a）Abiginternationally-importantmarketliketheNYSE

b）Amarketwherecorporationsissuenewsharestoinitialinvestors

c）Wherebrokersandmarketmakerstrade

d）Noneoftheabove

Answer:

b）

MarketCapitalizationofDevelopedCountries

2Themarketcapofthedevelopedworld

a）Isabout90percentofthemarketcapoftheentireworld

b）Isabout80percentofthemarketcapoftheentireworld

c）Isabout70percentofthemarketcapoftheentireworld

d）Isabout60percentofthemarketcapoftheentireworld

Answer:

a）

MarketCapitalizationofDevelopingCountries

3Ingeneral,Standard&Poor’sEmergingMarketsDataBaseclassifiedastockmarketas“emerging”if

a）Itislocatedinalow-ormiddle-incomeeconomyasdefinedbytheWorldBank

b）ItsinvestablemarketcapitalizationislowrelativetoitsmostrecentGNIfigures

c）a）orb）

d）noneoftheabove

Answer:

c）

4Investmentinforeignequitymarkets

a）Isareal“backwater”infinance

b）Becamecommonpracticeinthe1980sasinvestorsdiversifiedtheirportfolios.

c）Duringthe1980swaslargelyconfinedtothedevelopedworld

d）Alloftheabove

Answer:

d）

5Inmutualfunds,investmentinemergingforeignequitymarkets

a）RepresentslessthanonepercentofinvestmentsinU.S.-basedmutualfunds.

b）RepresentsaboutfivepercentofinvestmentsinU.S.-basedmutualfunds.

c）RepresentsmorethantwentypercentofinvestmentsinU.S.-basedmutualfunds.

d）Declinedduringthe1990s

Answer:

a）

MeasuresofLiquidity

6Whichinvestmentislikelytobethemostliquid:

a）AshareofpubliclytradedcompanytradingontheNYSE.

b）AbondissuedbyaFortune500company.

c）Ahouseinanicepartoftown.

d）a）andb）areequallyliquid

Answer:

a）

Rationale:

bondsreallyaren’tthatliquid—especiallywhencomparedtostocks.

7Ameasureof“liquidity”forastockmarketis

a）theturnoverratio

b）theratioofstockmarkettransactionsoveraperiodoftimedividedbythesize,ormarketcapitalization,ofthestockmarket

c）theLIBORrate

d）a）andb）

Answer:

d）

8

Asameasureof“liquidity”

a）Generally,thelowertheturnover,thegreatertheliquidityofasecondarystockmarket.

b）Generally,thehighertheturnover,thegreatertheliquidityofasecondarystockmarket.

c）Themoreafinancialassetgurgleswhenshookthegreatertheliquidity

d）Noneoftheabove

Answer:

b）

9Manyofthesmallforeignequitymarkets（e.g.Chile,SriLanka）

a）Havepoorliquidityatpresent.

b）Areveryliquidstockmarkets,sincethepoorpeoplelivingthereareeagertoselltheirsecurities.

c）Havefairlyhighturnoverratiosindicatingstrongliquidity.

d）Noneoftheabove

Answer:

a）

10Ingeneralifaninvestment

a）Haspoorliquidityitshouldofferinvestorsaliquiditypremium.

b）Canbesoldfairlyquicklyatafairprice,ithasgoodliquidity

c）a）andb）

d）Noneoftheabove

Answer:

c）

11Manyofthelargerforeignequitymarkets（e.g.Korea,India）

a）Havepoorliquidityatpresent.

b）Areveryliquidstockmarkets,sincethepoorpeoplelivingthereareeagertoselltheirsecurities.

c）Havehighturnoverratios

d）Noneoftheabove

Answer:

c）

MeasuresofMarketConcentration

12Themoreconcentratedanationalstockmarketis

a）Thegreateropportunityaglobalinvestorhastoincludesharesfromthatcountyinaninternationallydiversifiedportfolio.

b）Thelessopportunityaglobalinvestorhastoincludesharesfromthatcountyinaninternationallydiversifiedportfolio.

c）Thebroadertheinvestorbaseacrossanumberofdifferentsharesandindustries.

d）Noneoftheabove

Answer:

b）

MarketStructure,TradingPractices,andCosts

13Thesecondarystockmarkets

a）Arethemarketsfor“pre-owned”or“used”sharesofstock

b）Providemarketabilitytoshares.

c）Providepricediscoveryorsharevaluation.

d）Alloftheabove

Answer:

d）

14Pricediscoveryinthesecondarystockmarkets

a）Occursduetothecompetitivetradingbetweenbuyersandsellers,justlikeoneBay.

b）Issetonceadayattheclose.

c）IssetbytheinvestmentbankersattheIPO.

d）Alloftheabove

Answer:

a）

15Amarketorder

a）Isaninstructionfromacustomertoabrokertobuyorsellatthebestpriceavailablewhentheorderisreceived（immediately）

b）Isaninstructionfromacustomertoabrokertobuyorsellinaparticularmarket（e.g.NYSE）.

c）Isalwaysandeverywhere“fillorkill”.

d）Isalwaysandeverywhere“goodtillcancelled”.

Answer:

a）

Rationale:

c）andd）aretempting,butyoushouldalwaysbesuspiciousofanswerchoicesthatinclude“alwaysandeverywhere”—there’sgottobeanexceptionsometimesorsomewhere.

16Alimitorder

a）Isaninstructionfromacustomertoabrokertobuyorsellinataparticularprice（orbetter）

b）Canbea“dayorder”—thatistheorderiscancelledifnotexecutedduringthatday’strading.

c）Canbe“goodtillcancelled”.

d）Alloftheabove

Answer:

d）

17DealersinanOTCmarket

a）Standreadytobuyatthebidandsellattheaskprice.

b）Settheirownbidandaskprices

c）Donotchargecommissions

d）Alloftheabove

Answer:

d）

18

TheOTCmarket

a）Doesnotacceptcredit—“onlytakecash”

b）Isadealermarket

c）IncludestheNASDAQintheU.S.

d）b）andc）

Answer:

d）

19A“specialist”

a）Makesamarketbyholdinganinventoryofaparticularsecurity,likeIBMorIntel,

b）Isaparticipantontheflooroftheexchange,liketheNYSE

c）Hasadesignatedstationontheflooroftheexchange

d）Alloftheabove

Answer:

d）

20AcrowdoffloortradersontheNYSE

a）Mayarriveatamorefavorablepricefortheirclients“inside”thespecialist’sbidandaskquotes.

b）Areobligedtoexecutetheirtradesthroughaspecialist.

c）Areallowedto“frontrun”theirowntradesaheadofcustomertrades.

d）Alloftheabove

Answer:

a）

21AspecialistontheNYSE

a）Isobligedtofilllimitordersiftheyaremorefavorablethanthespecialist’spostedbidandaskquotes.

b）Isobligedtofilllimitordersatthespecialist’spostedbidandaskquotes.

c）Isactuallyacomputerprogram,notahuman

d）a）andc）

Answer:

a）

22A“callmarket”

a）IsOTCandover-the-phone

b）Featuresanagentoftheexchangethataccumulatesabatchofordersthatareperiodicallyexecutedbywrittenorverbalauctionthroughouttheday.

c）Providestraderswithexecutionatcertainprices.

d）b）andc）

Answer:

b）

23TheTorontoStockexchange

a）Isafullyautomated

b）Featureselectronicmatchingofpublicorders

c）Hascontinuousorderflow

d）Alloftheabove

Answer:

d）

24“Callmarket”and“crowdtrading”takeplaceon

a）anon-continuousexchangetradingsystem

b）acontinuoustradingexchangesystem

c）non-continuousmarketsandcontinuousmarkets,respectively

d）continuousmarketsandnon-continuousmarkets,respectively

Answer:

a）

25Comparingagencyversusdealermarkets,whichcombinationofthefollowingstatementsistrue:

（i）-Ina“dealermarket,”thebrokertakestheclient’sorderthroughtheagent,whomatchesitwithanotherpublicorder.

（ii）-Inan“agencymarket,”thebrokertakesthetradethroughthedealer,whoparticipatesintradesasaprincipalbybuyingandsellingthesecurityforhisownaccount.

（iii）-Inan“agencymarket,”thebrokertakestheclient’sorderthroughtheagent,whomatchesitwithanotherpublicorder.

（iv）-Ina“dealermarket,”thebrokertakesthetradethroughthedealer,whoparticipateintradesasaprincipalbybuyingandsellingthesecurityforhisownaccount.

（v）-Anagentcanbeviewedasa“broker’sbroker.”

（vi）-Adealercanbeviewedasa“broker’sbroker.”

a）（i）,（ii）,and（v）

b）（i）,（ii）,and（vi）

c）（iii）,（iv）,and（v）

d）（iii）,（iv）,and（vi）

Answer:

c）

InternationalEquityMarketBenchmarks

26Amarket-valueindex

a）Iscalculatedsuchthattheproportionoftheindexastockrepresentsisdeterminedbyitsproportionofthetotalmarketcapitalizationofallstocksintheindex.

b）Iscalculatedastheaveragepriceofallthestocksintheindexthattradethatday,oneexampleistheNASDAQ.

c）IscalculatedliketheDJIA

d）Noneoftheabove

Answer:

a）

iSharesMSCI

27iSharesMSCIare:

a）ExchangetradedfundsthataresubjecttoU.S.SECandIRSdiversificationrequirements.

b）Open-endmutualfundssoldOTC.

c）ExchangetradedfundsthatareNOTsubjecttoU.S.SECandIRSdiversificationrequirements.

d）Noneoftheabove

Answer:

a）

TradinginInternationalEquities

Cross-ListingofShares

28Afirmmaycross-listitsshareto:

a）establishabroaderinvestorbaseforitsstock

b）establishnamerecognitioninforeigncapitalmarkets,thuspavingthewayforthefirmtosourcenewequityanddebtcapitalfrominvestorsindifferentmarkets

c）exposethefirm’snametoabroaderinvestorandconsumergroups

d）Alloftheabove

Answer:

d）

29Companiesdomiciledincountrieswithweakinvestorprotectioncanreduceagencycostsbetweenshareholdersandmanagement

a）Bymovingtoabettercounty

b）Bylistingtheirstocksincountrieswithstronginvestor