13.pdf

13 Student: ___________________________________________________________________________

1.

In a dealer market, the broker takes the trade through the dealer, who participates in trades as a principal by buying and selling the security for his own account. True False

2.

Public traders do not trade directly with one another in a dealer market. True False

3.

The sale of new common stock by corporations to initial investors occurs in A. the primary market. B. the secondary market. C. the OTC market. D. the dealer market.

4.

The sale of previously issued common stock traded between investors occurs in A. the primary market. B. the secondary market. C. the on-the-run market. D. the dealer market.

5.

A "primary" stock market is A. a big internationally-important market like the NYSE. B. a market where corporations issue new shares to initial investors. C. where brokers and market makers trade. D. none of the above

6.

The market capitalization of the developed world A. is about 90 percent of the market capitalization of the entire world. B. is about 80 percent of the market capitalization of the entire world. C. is about 70 percent of the market capitalization of the entire world. D. is about 60 percent of the market capitalization of the entire world.

7.

The market capitalization of the developing world A. is about 80 percent of the market capitalization of the entire world. B. is about 60 percent of the market capitalization of the entire world. C. is about 40 percent of the market capitalization of the entire world. D. is about 20 percent of the market capitalization of the entire world.

8.

In general, Standard & Poor's 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. either a or b D. none of the above

9.

Investment in foreign equity markets A. is no longer considered a "backwater" in the field of Finance. B. became common practice in the 1980s as investors diversified their portfolios. C. during the 1980s was largely confined to the developed world. D. all of the above

10. During the 1980s, cross-border equity investment was largely confined A. to the equity markets of developed countries. B. to the emerging equity markets. C. to the equity markets of the former Soviet Union. D. none of the above 11. In mutual funds, investment in emerging foreign equity markets A. represents less than one percent of investments in U.S.-based mutual funds. B. represents about five percent of investments in U.S.-based mutual funds. C. represents more than twenty percent of investments in U.S.-based mutual funds. D. declined during the 1990s. 12. Only in the _______ did world investors start to invest sizable amounts in the emerging equity markets, as the economic growth and prospects of the developing countries improved. A. 1960s B. 1970s C. 1980s D. 1990s 13. Which investment is likely to be the most liquid? A. A share of publicly traded company trading on the NYSE. B. A bond issued by a Fortune 500 company. C. A house in a nice part of town. D. a and b are equally liquid 14. Which investment is likely to be the least liquid? A. A share of publicly traded company trading on the NYSE. B. A bond issued by a Fortune 500 company. C. A house in a nice part of town. D. a and b are equally liquid 15. A liquid stock market A. is one in which prices reflect all relevant information quickly. B. is one in which prices reflect all publicly available information quickly. C. is one in which prices reflect price and volume information quickly. D. is one in which investors can buy and sell stocks quickly at close to the current quoted prices. 16. A measure of liquidity for a stock market is the turnover ratio; defined as A. the ratio of stock market transactions over a period of time divided by the size, or market capitalization, of the stock market. B the ratio the size, or market capitalization, of the stock market divided by the value of the stock market . transactions over a period of time. C. the ratio of aggregate company sales over a period of time divided by the size, or market capitalization, of the stock market. D. none of the above 17. Generally, the higher the turnover ratio, A. the less liquid the secondary stock market, indicating ease in trading. B. the more liquid the secondary stock market, indicating ease in trading. C. the more liquid the primary stock market, indicating ease in trading. D. the more efficient the stock market is. 18. The turnover ratio percentages for 27 equity markets of developed countries for the five years beginning with 2002 were measured. Most national equity markets had very high turnover ratios, with the great majority in excess of A. 15 percent turnover per year. B. 25 percent turnover per year. C. 50 percent turnover per year. D. 75 percent turnover per year.

19. The turnover ratio percentages for 36 equity markets of emerging markets for the five years beginning with 2002 were measured. Many of the small equity markets in each region (e.g., Peru, Venezuela, Sri Lanka, Slovak Republic, Croatia, and Zimbabwe) have relatively low turnover ratios, A. indicating poor liquidity at present. B. indicating good liquidity at present. C. indicating strong investment performance over the period. D. none of the above 20. A measure of "liquidity" for a stock market is A. the times interest earned ratio. B. the ratio of stock market transactions over a period of time divided by the size, or market capitalization, of the stock market. C. the LIBOR rate. D. both a and b 21. 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 22. Generally, the lower the turnover ratio, A. the less liquid the secondary stock market, indicating difficulty in trading. B. the more liquid the secondary stock market, indicating difficulty in trading. C. the more liquid the primary stock market, indicating difficulty in trading. D. the more efficient the stock market is. 23. 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 24. 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. both a and b D. none of the above 25. Many of the larger the larger emerging equity markets (e.g. Korea, India) A. have poor liquidity at present. B are more liquid stock markets than the developed world, since the poor people living in the developing . world are eager to sell their securities. C. have high turnover ratios. D. none of the above 26. In which type of market can liquidity "dry up"? A. A bull market B. A bear market C. A speculative bubble D. A financial panic 27. In which type of policy actions by the Fed can liquidity "dry up"? A. Easy money B. Tight money C. Decrease in the reserve requirement D. Decrease in the discount rate

28. The smaller the concentration percentage, A. the more concentrated a market is in a few stock issues. B. the less concentrated a market is. C. the more liquid the secondary stock market is. D. none of the above 29. Over the last few years, turnover ratios in many emerging markets remained low and market concentration ratios remained high, indicating A. that investment opportunities in these markets have been improving. B. that investment opportunities in these markets have not been improving. C. that investment opportunities in these markets are about to improve. D. none of the above 30. The smaller the concentration percentage, A. the more concentrated a market is in a few stock issues. B. the less concentrated a market is. C. the more liquid the secondary stock market is. D. none of the above 31. In 2002, 24 stock markets had concentration ratios of 40 percent or more, 16 had 50 percent or more, and 6 had 60 percent or more. By comparison, in 2006, 27 stock markets had concentration ratios of 40 percent or more, 21 had 50 percent or more, and 11 had 60 percent or more. Thus, one must conclude A that the number of equity investment opportunities in major stock markets in developed countries has . not been improving in recent years. B that the number of equity investment opportunities in emerging stock markets in developing countries . has been improving in recent years. C that the number of equity investment opportunities in emerging stock markets in developing countries . has not been improving in recent years. D. none of the above 32. 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 33. The secondary stock markets A. are the markets for "pre-owned" or "used" shares of stock. B. provide marketability to shares. C. provide price discovery or share valuation. D. all of the above 34. The secondary equity markets of the world serve two major purposes. They provide A. marketability and share valuation. B. liquidity and price support. C. price discovery and arbitrage. D. safety and stability. 35. Price discovery in the secondary stock markets A. occurs due to the competitive trading between buyers and sellers, just like on eBay. B. is set once a day at the close. C. is set by the investment bankers at the IPO. D. all of the above

36. An all-or-none order is a limit order either to buy or to sell a security in which the broker is directed to attempt to fill the entire amount of the order or none of it. An all-or-none order differs from a fill-or-kill order in that A. with an all-or-none order immediate execution is not required. B. with an all-or-none order immediate execution is required. C. with an all-or-none order oversubscription is allowed—filling the order for more shares. D. none of the above 37. A market order A.is an instruction from a customer to a broker to buy or sell at the best price available when the order is received (immediately). B. is an instruction from a customer to a broker to buy or sell in a particular market (e.g. NYSE). C. is always and everywhere "fill or kill". D. is always and everywhere "good till cancelled". 38. A limit order A. is an instruction from a customer to a broker to buy or sell in at a particular price (or better). B. can be a "day order"—that is the order is cancelled if not executed during that day's trading. C. can be "good till cancelled". D. all of the above 39. A stop-limit order is an order to buy or sell a stock that combines the features of a stop order and a limit order. Once the stop price is touched in the market, the stop-limit order becomes a limit order to buy or to sell at the limit price. Which of the following are true? A. The benefit of a stop-limit order is that the investor can control the price at which the trade will get executed. BA stop-limit order may never get filled if the stock's price never reaches the specified limit price. This . may happen especially in fast-moving markets where prices fluctuate wildly. C. The use of stop limit orders is much more frequent for stocks that trade on an exchange than in the over-counter (OTC) market. D In addition, your broker-dealer may not allow you to place a stop limit order on some securities or . accept a stop limit order for OTC stocks. E. All of the above are true 40. Which of the following are true? A. Unless you give your broker specific instructions to the contrary, orders to buy or sell a stock are day orders. B Orders that have been placed but not executed during regular trading hours will automatically carry . over into after-hours trading but not the next regular trading day. C. Similarly, day orders placed during after-hours trading will automatically carry over into the next regular trading day. D. If your order is not executed during a trading session, you are not allowed to place a new order in the next trading session. E. All of the above are true 41. A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the specified price is reached, your stop order becomes A. a market order. B. a good-til-cancelled (GTC) order. C. a day order. D. none of the above

42. Unlike day orders, a good-til-cancelled (GTC) order is an order to buy or sell a security at a specific or limit price that lasts until the order is completed or cancelled. Which of the following are true? A. A GTC order will not be executed until the limit price has been reached, regardless of how many days or weeks it might take. B. Investors often use GTC orders to set a limit price that is far away from the current market price. C.Some brokerage firms may limit the time a GTC order can remain in effect and may charge more for executing this type of order. D. All of the above are true 43. To avoid buying a stock at a price higher than you intend, you need to place ________ rather than a market order. A. a stop-loss order B. a day order C. a good-til-cancelled order D. a limit order 44. A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as A. the stop price. B. the limit price. C. the last price. D. the sell price 45. The advantages of a market order include the fact that A. you are pretty much guaranteed that your order will be executed. B. a market order typically has lower commissions than a limit order. C. market orders increase your liquidity. D. both a and b 46. Dealers in an OTC market A. stand ready to buy at the bid and sell at the ask price. B. set their own bid and ask prices. C. do not charge commissions. D. all of the above 47. A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the specified price is reached, your stop order becomes a market order, The advantage of a stop order is that A. you don't have to monitor how a stock is performing on a daily basis. B. the stop price can be activated by a short-term fluctuation in a stock's price. Conce your stop price is reached, your stop order becomes a market order and the price you receive may . be much different from the stop price, especially in a fast-moving market where stock prices can change rapidly. D. all of the above are advantages 48. The OTC market A. does not accept credit—the dealers "only take cash". B. is a dealer market. C. includes the NASDAQ in the U.S. D. both b and c 49. A "specialist" A. makes a market by holding an inventory of a particular security, like IBM or Intel. B. is a participant on the floor of the exchange, like the NYSE. C. has a designated station on the floor of the exchange. D. all of the above

50. A crowd of floor traders on the NYSE A. may arrive at a more favorable price for their clients "inside" the specialist's bid and ask quotes. B. are obliged to execute their trades through a specialist. C. are allowed to "front run" their own trades ahead of customer trades. D. all of the above 51. A specialist on the NYSE A. is obliged to fill limit orders if they are more favorable than the specialist's posted bid and ask quotes. B. is obliged to fill limit orders at the specialist's posted bid and ask quotes. C. is actually a computer program, not a human. D. both a and c 52. A "call market" A. is OTC and over-the-phone. B features an agent of the exchange that accumulates a batch of orders that are periodically executed by . written or verbal auction throughout the day. C. provides traders with execution at certain prices. D. both b and c 53. The Toronto Stock exchange A. is a fully automated. B. features electronic matching of public orders. C. has continuous order flow. D. all of the above 54. In an agency market, the broker takes the client's order through the agent, who matches it with another public order. The agent can be viewed as A. a dealer. B. a specialist. C. a broker's broker. D. none of the above 55. In an agency market, the broker takes the client's order through the agent, who matches it with another public order. Names for the agent are A. official broker. B. central broker. C. a broker's broker. D. all of the above 56. The Paris Bourse was traditionally a call market. In a call market, an agent of the exchange accumulates, over a period of time, a batch of orders that are periodically executed by written or verbal auction throughout the trading day. Both market and limit orders are handled in this way. The major disadvantage of a call market is that A traders are not certain about the price at which their orders will transact because bid and ask quotations . are not available prior to the call. B traders are not certain about how many shares will be able to sell or buy at the price they quote because . order volume is not available prior to the call. C. there is a lack of liquidity intercall. D. none of the above 57. A type of noncontinuous exchange trading system is crowd trading. A unlike a call market in which there is a common price for all trades, several bilateral trades may take . place at different prices in crowd trading. B unlike a continuous market in which there is a common price for all trades, several bilateral trades may . take place at different prices. C unlike a call market in which several bilateral trades may take place at different prices there is a . common price for all trades in a call market. D. none of the above

58. Which type of trading system is desirable for actively traded issues? A. Continuous trading systems B. Call trading systems C. Crowd trading systems D. None of the above 59. Call markets and crowd trading offer advantages for __________ because they mitigate the possibility of sparse order flow over short time periods. A. thinly traded issues B. actively traded issues C. stocks but not bonds D. None of the above 60. The over-the-counter (OTC) market is a dealer market. Almost all OTC stocks trade on the National Association of Security Dealers Automated Quotation System (NASDAQ), which is a computer-linked system that shows A. the limit orders of all available counterparties. B. the last price at which a security was sold. C. the bid (buy) and ask (sell) prices of all dealers in a security. D. the bid (sell) and ask (buy) prices of all dealers in a security. 61. On the NYSE, limit order prices receive preference in establishing the posted bid and ask prices if they are more favorable than the specialist's. Therefore A. a specialist must fill a limit order, if possible, from his own account before trading the flow of public orders. B. specialists must fill a limit order, if possible, from the flow of public orders before trading for his own account. C. a specialist must change his posted bid and ask prices to reflect the available limit orders. 62. The large exchange markets in the United States are A. agency markets. B. call markets. C. auction markets. D. agency/auction markets. 63. "Call market" and "crowd trading" take place on A. a non-continuous exchange trading system. B. a continuous trading exchange system. C. non-continuous markets and continuous markets, respectively. D. continuous markets and non-continuous markets, respectively. 64. Comparing agency versus dealer markets, which combination of the following statements is true: (i) - In a "dealer market," the broker takes the client's order through the agent, who matches it with another public order. (ii) - In an "agency market," the broker takes the trade through the dealer, who participates in trades as a principal by buying and selling the security for his own account. (iii) - In an "agency market," the broker takes the client's order through the agent, who matches it with another public order. (iv) - In a "dealer market," the broker takes the trade through the dealer, who participate in trades as a principal by buying and selling the security for his own account. (v) - An agent can be viewed as a "broker's broker." (vi) - A dealer can be viewed as a "broker's broker." A. (i), (ii), and (v) B. (i), (ii), and (vi) C. (iii), (iv), and (v) D. (iii), (iv), and (vi)

65. A market-value index A is calculated such that the proportion of the index a stock represents is determined by its proportion of . the total market capitalization of all stocks in the index. B. is calculated as the average price of all the stocks in the index that trade that day, one example is the NASDAQ. C. is calculated like the DJIA. D. none of the above 66. Transactions in shares of the iShares Funds will typically generate tax consequences. This is because A. iShares Funds are obliged to distribute portfolio gains to shareholders. B. iShares Funds are not allowed to be held in tax-qualified accounts such as IRAs. C. iShares Funds feature daily resettlement. D. none of the above 67. 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 68. 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 firm's name to a broader investor and consumer groups. D. all of the above 69. Stock in Daimler AG, the famous German automobile manufacturer trades on both the Frankfurt Stock Exchange in Germany and on the New York Stock Exchange. On the Frankfurt bourse, Daimler closed at a price of €54.34 on Wednesday, March 5, 2008. On the same day, Daimler closed in New York at $83.55 per share. To prevent arbitrage trading between the two exchanges, the shares should trade at the same price when adjusted for the exchange rate. The $/€ exchange rate on March 5 was $1.5203/€1.00. Thus, €54.34 × $1.5203/€ = $82.61, while the closing price in New York was $83.55. The difference is easily explainable by the fact that A. transactions costs exceeded the price difference, so no arbitrage was possible even for market makers. B. no one noticed the arbitrage that day, but in a day or so the opening price will adjust. C the New York market closes several hours after the Frankfurt exchange, and thus market prices or . exchange rates had changed slightly. D. none of the above 70. 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. 71. Advantages of cross-listing include: A. This decision provides their shareholders with a higher degree of protection than may be available in the home country. B. This decision can be a signal of the company's commitment to shareholder rights. C This may make investors both at home and abroad more willing to provide capital and to increase the . value of the pre-existing shares. D. All of the above

72. "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 73. Which factors fuel the sale of "Yankee" stock offerings? A. Privatization by many Latin American and Eastern European government-owned companies. B. The rapid growth in the economies of the developing world. C. The expected large demand for new capital by Mexican companies now that NAFTA has been approved. D. All of the above 74. Which factors appear to be fueling the sale of Yankee stocks? A. The push for privatization by many Latin American and Eastern European government-owned companies. B. The rapid growth in the economies of the developing countries. C. The large demand for new capital by Mexican companies following approval of the North American Free Trade Agreement. D. All of the above 75. Following monetary union and the advent of the euro: A. The countries of the European union have enacted common securities regulation. B. A pan-European stock exchange has developed in London, similar to the NYSE in scope and trading practices. C. Development of a common securities regulations, even among the countries of the European Union, has not as yet occurred. D. None of the above 76. The European Stock Exchange, comparable in volume to the NYSE A. is located in Milan. B. is located in London. C. is located in Frankfurt. D. none of the above 77. The first ADRs began trading ________ as a means of eliminating some of the risks, delays, inconveniences, and expenses of trading the actual shares. A. in 1997 B. in 1987 C. in 1977 D. in 1927 78. American Depository Receipt (ADRs) represent foreign stocks A. denominated in U.S. dollars that trade on European stock exchanges. B. denominated in U.S. dollars that trade on a U.S. stock exchange. C. denominated in a foreign currency that trade on a U.S. stock exchange. D. non-registered (bearer) securities. 79. Yankee stocks A. often trade as ADRs and have higher risks than trading the actual shares. B. often trade as ADRs and have lower risks than trading the actual shares. C. are bank receipts representing a multiple of foreign shares deposited in a U.S. bank. D. both b and c 80. 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. depository's custodian. D. all of the above

81. Sponsored ADRs A. are 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 82. 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 83. 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 Avionelle ADR? Assume that transactions costs are negligible. A. $63 B. $32.14 C. $45 D. $45.50 84. In the London market, Rolls-Royce stock closed at £0.875 per share. On the same day, the British Pound sterling to the U.S. dollar spot exchange rate was £0.6366/$1.00. Rolls Royce trades as an ADR in the OTC market in the United States. Five underlying Rolls-Royce shares are packaged into one ADR. The no-arbitrage U.S. price of one ADR is A. $4.87. B. $5.87. C. $6.87. D. $7.87. 85. 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 86. In the London market, Rolls-Royce stock closed at £0.875 per share. On the same day, the British Pound sterling to the U.S. dollar spot exchange rate was £0.6366/$1.00. Rolls Royce trades as an ADR in the OTC market in the United States. Five underlying Rolls-Royce shares are packaged into one ADR. 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 87. In the Frankfurt market, Aldi stock closed at €5 per share. On the same day, the euro U.S. dollar spot exchange rate was €.625/$1.00. Aldi trades as an ADR in the OTC market in the United States. Five underlying Aldi shares are packaged into one ADR. The no-arbitrage U.S. price of one ADR is A. €25.00. B. $15.625. C. $40. D. None of the above.

88. 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 89. 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 90. Cross-correlations among major stock markets and exchange markets are A. relatively high. B. relatively low. C. essentially perfect. D. practically zero. 91. Macroeconomic factors affecting international equity returns include A. exchange rate changes. B. interest rate differentials. C. changes in inflationary expectations. D. all of the above 92. Changes in exchange rates A. explain a larger portion of the variability foreign bond indexes than foreign equity indexes. B. do not affect all foreign equity markets equally. C. do affect dollar-denominated foreign equity returns, but this risk can be hedged. D. all of the above 93. Calculate the dollar-based percentage return an American would have if he bought a British stock at ₤50 per share and sold it one year later at ₤60. The spot exchange rate one year ago was $1.50 = ₤1 and the spot rate prevailing at the end of the year was $1.20 = ₤1. A. 36% gain B. 20% gain C. 4% loss D. 9.6% gain E. None of the above 94. Calculate the dollar-based percentage return an American would have if he bought a German stock at €50 per share and sold it one year later at €60. The spot exchange rate one year ago was $1.50 = €1 and the spot rate prevailing at the end of the year was $1.70 = €1. A. 36% gain B. 26.47% gain C. 4% loss D. 9.6% gain E. None of the above

95. Decompose the return an American would have if he had bought a German stock at €100 per share and sold it one year later at €120. The spot exchange rate one year ago was $1.50 = €1 and the spot rate prevailing at the end of the year was $1.55 = €1. A. 24% total return; 20% asset return; 4% attributable to exchange rate changes B. 20% total return; 16.77% asset return; 3.23% attributable to exchange rate changes C. 24% total return; 20% asset return; 3.33% attributable to exchange rate changes D. None of the above 96. A common set of factors that affect equity returns include A macroeconomic variables that influence the overall economic environment in which the firm issuing . the security conducts its business. B exchange rate changes between the currency of the country issuing the stock and the currency of other . countries where suppliers, customers, and investors of the firm reside. C. the industrial structure of the country in which the firm operates. D. all of the above 97. Asprem (1989) found that changes in industrial production, employment, and imports, the level of interest rates, and an inflation measure explained only a small portion of the variability of equity returns for 10 European countries, but that substantially more of the variation was explained by A. an international market index. B. changes in exchange rates. C. the Herfindahl index. D. the 4-firm concentration ratio. 98. Solnik (1984) examined the effect of exchange rate changes, interest rate differentials, the level of the domestic interest rate, and changes in domestic inflation expectations. He found that A. international monetary variables had only weak influence on equity returns in comparison to domestic variables. B. international monetary variables had a stronger influence on equity returns in comparison to domestic variables. C. international monetary variables had no influence at all on equity returns. D. none of the above 99. Adler and Simon (1986) examined the exposure of a sample of foreign equity and bond index returns to exchange rate changes. They found that A changes in exchange rates generally explained a smaller portion of the variability of foreign bond . indexes than foreign equity indexes. B changes in exchange rates generally explained none of the variability of foreign bond indexes but . completely explained the variability in foreign equity indexes. C changes in exchange rates generally explained a larger portion of the variability of foreign equity . indexes than foreign bond indexes. D changes in exchange rates generally explained a larger portion of the variability of foreign bond . indexes than foreign equity indexes. 100.Studies examining the influence of industrial structure on foreign equity returns A. conclusively show a connection. B. have been inconclusive. C. show that industrialized economies outperform lesser developed economies. D. none of the above

13 Key 1.

In a dealer market, the broker takes the trade through the dealer, who participates in trades as a principal by buying and selling the security for his own account. TRUE Eun - Chapter 13 #1 Topic: Market Structure, Trading Practices, and Costs

2.

Public traders do not trade directly with one another in a dealer market. TRUE Eun - Chapter 13 #2 Topic: Market Structure, Trading Practices, and Costs

3.

The sale of new common stock by corporations to initial investors occurs in A. the primary market. B. the secondary market. C. the OTC market. D. the dealer market. Eun - Chapter 13 #3 Topic: A Statistical Perspective

4.

The sale of previously issued common stock traded between investors occurs in A. the primary market. B. the secondary market. C. the on-the-run market. D. the dealer market. Eun - Chapter 13 #4 Topic: A Statistical Perspective

5.

A "primary" stock market is A. a big internationally-important market like the NYSE. B. a market where corporations issue new shares to initial investors. C. where brokers and market makers trade. D. none of the above Eun - Chapter 13 #5 Topic: A Statistical Perspective

6.

The market capitalization of the developed world A. is about 90 percent of the market capitalization of the entire world. B. is about 80 percent of the market capitalization of the entire world. C. is about 70 percent of the market capitalization of the entire world. D. is about 60 percent of the market capitalization of the entire world. Eun - Chapter 13 #6 Topic: Market Capitalization of Developed Countries

7.

The market capitalization of the developing world A. is about 80 percent of the market capitalization of the entire world. B. is about 60 percent of the market capitalization of the entire world. C. is about 40 percent of the market capitalization of the entire world. D. is about 20 percent of the market capitalization of the entire world. Eun - Chapter 13 #7 Topic: Market Capitalization of Developing Countries

8.

In general, Standard & Poor's 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. either a or b D. none of the above Eun - Chapter 13 #8 Topic: Market Capitalization of Developing Countries

9.

Investment in foreign equity markets A. is no longer considered a "backwater" in the field of Finance. B. became common practice in the 1980s as investors diversified their portfolios. C. during the 1980s was largely confined to the developed world. D. all of the above Eun - Chapter 13 #9 Topic: Market Capitalization of Developing Countries

10.

During the 1980s, cross-border equity investment was largely confined A. to the equity markets of developed countries. B. to the emerging equity markets. C. to the equity markets of the former Soviet Union. D. none of the above Eun - Chapter 13 #10 Topic: Market Capitalization of Developing Countries

11.

In mutual funds, investment in emerging foreign equity markets A. represents less than one percent of investments in U.S.-based mutual funds. B. represents about five percent of investments in U.S.-based mutual funds. C. represents more than twenty percent of investments in U.S.-based mutual funds. D. declined during the 1990s. Eun - Chapter 13 #11 Topic: Market Capitalization of Developing Countries

12.

Only in the _______ did world investors start to invest sizable amounts in the emerging equity markets, as the economic growth and prospects of the developing countries improved. A. 1960s B. 1970s C. 1980s D. 1990s Eun - Chapter 13 #12 Topic: Market Capitalization of Developing Countries

13.

Which investment is likely to be the most liquid? A. A share of publicly traded company trading on the NYSE. B. A bond issued by a Fortune 500 company. C. A house in a nice part of town. D. a and b are equally liquid Eun - Chapter 13 #13 Topic: Measures of Liquidity

14.

Which investment is likely to be the least liquid? A. A share of publicly traded company trading on the NYSE. B. A bond issued by a Fortune 500 company. C. A house in a nice part of town. D. a and b are equally liquid Eun - Chapter 13 #14 Topic: Measures of Liquidity

15.

A liquid stock market A. is one in which prices reflect all relevant information quickly. B. is one in which prices reflect all publicly available information quickly. C. is one in which prices reflect price and volume information quickly. D. is one in which investors can buy and sell stocks quickly at close to the current quoted prices. Eun - Chapter 13 #15 Topic: Measures of Liquidity

16.

A measure of liquidity for a stock market is the turnover ratio; defined as A. the ratio of stock market transactions over a period of time divided by the size, or market capitalization, of the stock market. B.the ratio the size, or market capitalization, of the stock market divided by the value of the stock market transactions over a period of time. C. the ratio of aggregate company sales over a period of time divided by the size, or market capitalization, of the stock market. D. none of the above Eun - Chapter 13 #16 Topic: Measures of Liquidity

17.

Generally, the higher the turnover ratio, A. the less liquid the secondary stock market, indicating ease in trading. B. the more liquid the secondary stock market, indicating ease in trading. C. the more liquid the primary stock market, indicating ease in trading. D. the more efficient the stock market is. Eun - Chapter 13 #17 Topic: Measures of Liquidity

18.

The turnover ratio percentages for 27 equity markets of developed countries for the five years beginning with 2002 were measured. Most national equity markets had very high turnover ratios, with the great majority in excess of A. 15 percent turnover per year. B. 25 percent turnover per year. C. 50 percent turnover per year. D. 75 percent turnover per year. Eun - Chapter 13 #18 Topic: Measures of Liquidity

19.

The turnover ratio percentages for 36 equity markets of emerging markets for the five years beginning with 2002 were measured. Many of the small equity markets in each region (e.g., Peru, Venezuela, Sri Lanka, Slovak Republic, Croatia, and Zimbabwe) have relatively low turnover ratios, A. indicating poor liquidity at present. B. indicating good liquidity at present. C. indicating strong investment performance over the period. D. none of the above Eun - Chapter 13 #19 Topic: Measures of Liquidity

20.

A measure of "liquidity" for a stock market is A. the times interest earned ratio. B. the ratio of stock market transactions over a period of time divided by the size, or market capitalization, of the stock market. C. the LIBOR rate. D. both a and b Eun - Chapter 13 #20 Topic: Measures of Liquidity

21.

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 Eun - Chapter 13 #21 Topic: Measures of Liquidity

22.

Generally, the lower the turnover ratio, A. the less liquid the secondary stock market, indicating difficulty in trading. B. the more liquid the secondary stock market, indicating difficulty in trading. C. the more liquid the primary stock market, indicating difficulty in trading. D. the more efficient the stock market is. Eun - Chapter 13 #22 Topic: Measures of Liquidity

23.

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 Eun - Chapter 13 #23 Topic: Measures of Liquidity

24.

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. both a and b D. none of the above Eun - Chapter 13 #24 Topic: Measures of Liquidity

25.

Many of the larger the larger emerging equity markets (e.g. Korea, India) A. have poor liquidity at present. B are more liquid stock markets than the developed world, since the poor people living in the . developing world are eager to sell their securities. C. have high turnover ratios. D. none of the above Eun - Chapter 13 #25 Topic: Measures of Liquidity

26.

In which type of market can liquidity "dry up"? A. A bull market B. A bear market C. A speculative bubble D. A financial panic Eun - Chapter 13 #26 Topic: Measures of Liquidity

27.

In which type of policy actions by the Fed can liquidity "dry up"? A. Easy money B. Tight money C. Decrease in the reserve requirement D. Decrease in the discount rate Eun - Chapter 13 #27 Topic: Measures of Liquidity

28.

The smaller the concentration percentage, A. the more concentrated a market is in a few stock issues. B. the less concentrated a market is. C. the more liquid the secondary stock market is. D. none of the above Eun - Chapter 13 #28 Topic: Measures of Market Concentration

29.

Over the last few years, turnover ratios in many emerging markets remained low and market concentration ratios remained high, indicating A. that investment opportunities in these markets have been improving. B. that investment opportunities in these markets have not been improving. C. that investment opportunities in these markets are about to improve. D. none of the above Eun - Chapter 13 #29 Topic: Measures of Market Concentration

30.

The smaller the concentration percentage, A. the more concentrated a market is in a few stock issues. B. the less concentrated a market is. C. the more liquid the secondary stock market is. D. none of the above Eun - Chapter 13 #30 Topic: Measures of Market Concentration

31.

In 2002, 24 stock markets had concentration ratios of 40 percent or more, 16 had 50 percent or more, and 6 had 60 percent or more. By comparison, in 2006, 27 stock markets had concentration ratios of 40 percent or more, 21 had 50 percent or more, and 11 had 60 percent or more. Thus, one must conclude A that the number of equity investment opportunities in major stock markets in developed countries . has not been improving in recent years. B.that the number of equity investment opportunities in emerging stock markets in developing countries has been improving in recent years. C that the number of equity investment opportunities in emerging stock markets in developing . countries has not been improving in recent years. D. none of the above Eun - Chapter 13 #31 Topic: Measures of Market Concentration

32.

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 Eun - Chapter 13 #32 Topic: Measures of Market Concentration

33.

The secondary stock markets A. are the markets for "pre-owned" or "used" shares of stock. B. provide marketability to shares. C. provide price discovery or share valuation. D. all of the above Eun - Chapter 13 #33 Topic: Market Structure, Trading Practices, and Costs

34.

The secondary equity markets of the world serve two major purposes. They provide A. marketability and share valuation. B. liquidity and price support. C. price discovery and arbitrage. D. safety and stability. Eun - Chapter 13 #34 Topic: Market Structure, Trading Practices, and Costs

35.

Price discovery in the secondary stock markets A. occurs due to the competitive trading between buyers and sellers, just like on eBay. B. is set once a day at the close. C. is set by the investment bankers at the IPO. D. all of the above Eun - Chapter 13 #35 Topic: Market Structure, Trading Practices, and Costs

36.

An all-or-none order is a limit order either to buy or to sell a security in which the broker is directed to attempt to fill the entire amount of the order or none of it. An all-or-none order differs from a fill-orkill order in that A. with an all-or-none order immediate execution is not required. B. with an all-or-none order immediate execution is required. C. with an all-or-none order oversubscription is allowed—filling the order for more shares. D. none of the above Eun - Chapter 13 #36 Topic: Market Structure, Trading Practices, and Costs

37.

A market order A. is an instruction from a customer to a broker to buy or sell at the best price available when the order is received (immediately). B. is an instruction from a customer to a broker to buy or sell in a particular market (e.g. NYSE). C. is always and everywhere "fill or kill". D. is always and everywhere "good till cancelled". Eun - Chapter 13 #37 Topic: Market Structure, Trading Practices, and Costs

38.

A limit order A. is an instruction from a customer to a broker to buy or sell in at a particular price (or better). B. can be a "day order"—that is the order is cancelled if not executed during that day's trading. C. can be "good till cancelled". D. all of the above Eun - Chapter 13 #38 Topic: Market Structure, Trading Practices, and Costs

39.

A stop-limit order is an order to buy or sell a stock that combines the features of a stop order and a limit order. Once the stop price is touched in the market, the stop-limit order becomes a limit order to buy or to sell at the limit price. Which of the following are true? A. The benefit of a stop-limit order is that the investor can control the price at which the trade will get executed. B A stop-limit order may never get filled if the stock's price never reaches the specified limit price. . This may happen especially in fast-moving markets where prices fluctuate wildly. C. The use of stop limit orders is much more frequent for stocks that trade on an exchange than in the over-counter (OTC) market. D In addition, your broker-dealer may not allow you to place a stop limit order on some securities or . accept a stop limit order for OTC stocks. E. All of the above are true Eun - Chapter 13 #39 Topic: Market Structure, Trading Practices, and Costs

40.

Which of the following are true? A. Unless you give your broker specific instructions to the contrary, orders to buy or sell a stock are day orders. B Orders that have been placed but not executed during regular trading hours will automatically carry . over into after-hours trading but not the next regular trading day. C. Similarly, day orders placed during after-hours trading will automatically carry over into the next regular trading day. D. If your order is not executed during a trading session, you are not allowed to place a new order in the next trading session. E. All of the above are true Eun - Chapter 13 #40 Topic: Market Structure, Trading Practices, and Costs

41.

A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the specified price is reached, your stop order becomes A. a market order. B. a good-til-cancelled (GTC) order. C. a day order. D. none of the above Eun - Chapter 13 #41 Topic: Market Structure, Trading Practices, and Costs

42.

Unlike day orders, a good-til-cancelled (GTC) order is an order to buy or sell a security at a specific or limit price that lasts until the order is completed or cancelled. Which of the following are true? A. A GTC order will not be executed until the limit price has been reached, regardless of how many days or weeks it might take. B. Investors often use GTC orders to set a limit price that is far away from the current market price. C. Some brokerage firms may limit the time a GTC order can remain in effect and may charge more for executing this type of order. D. All of the above are true Eun - Chapter 13 #42 Topic: Market Structure, Trading Practices, and Costs

43.

To avoid buying a stock at a price higher than you intend, you need to place ________ rather than a market order. A. a stop-loss order B. a day order C. a good-til-cancelled order D. a limit order Eun - Chapter 13 #43 Topic: Market Structure, Trading Practices, and Costs

44.

A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as A. the stop price. B. the limit price. C. the last price. D. the sell price Eun - Chapter 13 #44 Topic: Market Structure, Trading Practices, and Costs

45.

The advantages of a market order include the fact that A. you are pretty much guaranteed that your order will be executed. B. a market order typically has lower commissions than a limit order. C. market orders increase your liquidity. D. both a and b Eun - Chapter 13 #45 Topic: Market Structure, Trading Practices, and Costs

46.

Dealers in an OTC market A. stand ready to buy at the bid and sell at the ask price. B. set their own bid and ask prices. C. do not charge commissions. D. all of the above Eun - Chapter 13 #46 Topic: Market Structure, Trading Practices, and Costs

47.

A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the specified price is reached, your stop order becomes a market order, The advantage of a stop order is that A. you don't have to monitor how a stock is performing on a daily basis. B. the stop price can be activated by a short-term fluctuation in a stock's price. Conce your stop price is reached, your stop order becomes a market order and the price you receive . may be much different from the stop price, especially in a fast-moving market where stock prices can change rapidly. D. all of the above are advantages Eun - Chapter 13 #47 Topic: Market Structure, Trading Practices, and Costs

48.

The OTC market A. does not accept credit—the dealers "only take cash". B. is a dealer market. C. includes the NASDAQ in the U.S. D. both b and c Eun - Chapter 13 #48 Topic: Market Structure, Trading Practices, and Costs

49.

A "specialist" A. makes a market by holding an inventory of a particular security, like IBM or Intel. B. is a participant on the floor of the exchange, like the NYSE. C. has a designated station on the floor of the exchange. D. all of the above Eun - Chapter 13 #49 Topic: Market Structure, Trading Practices, and Costs

50.

A crowd of floor traders on the NYSE A. may arrive at a more favorable price for their clients "inside" the specialist's bid and ask quotes. B. are obliged to execute their trades through a specialist. C. are allowed to "front run" their own trades ahead of customer trades. D. all of the above Eun - Chapter 13 #50 Topic: Market Structure, Trading Practices, and Costs

51.

A specialist on the NYSE A. is obliged to fill limit orders if they are more favorable than the specialist's posted bid and ask quotes. B. is obliged to fill limit orders at the specialist's posted bid and ask quotes. C. is actually a computer program, not a human. D. both a and c Eun - Chapter 13 #51 Topic: Market Structure, Trading Practices, and Costs

52.

A "call market" A. is OTC and over-the-phone. B features an agent of the exchange that accumulates a batch of orders that are periodically executed . by written or verbal auction throughout the day. C. provides traders with execution at certain prices. D. both b and c Eun - Chapter 13 #52 Topic: Market Structure, Trading Practices, and Costs

53.

The Toronto Stock exchange A. is a fully automated. B. features electronic matching of public orders. C. has continuous order flow. D. all of the above Eun - Chapter 13 #53 Topic: Market Structure, Trading Practices, and Costs

54.

In an agency market, the broker takes the client's order through the agent, who matches it with another public order. The agent can be viewed as A. a dealer. B. a specialist. C. a broker's broker. D. none of the above Eun - Chapter 13 #54 Topic: Market Structure, Trading Practices, and Costs

55.

In an agency market, the broker takes the client's order through the agent, who matches it with another public order. Names for the agent are A. official broker. B. central broker. C. a broker's broker. D. all of the above Eun - Chapter 13 #55 Topic: Market Structure, Trading Practices, and Costs

56.

The Paris Bourse was traditionally a call market. In a call market, an agent of the exchange accumulates, over a period of time, a batch of orders that are periodically executed by written or verbal auction throughout the trading day. Both market and limit orders are handled in this way. The major disadvantage of a call market is that A traders are not certain about the price at which their orders will transact because bid and ask . quotations are not available prior to the call. B traders are not certain about how many shares will be able to sell or buy at the price they quote . because order volume is not available prior to the call. C. there is a lack of liquidity intercall. D. none of the above Eun - Chapter 13 #56 Topic: Market Structure, Trading Practices, and Costs

57.

A type of noncontinuous exchange trading system is crowd trading. A unlike a call market in which there is a common price for all trades, several bilateral trades may take . place at different prices in crowd trading. B. unlike a continuous market in which there is a common price for all trades, several bilateral trades may take place at different prices. C.unlike a call market in which several bilateral trades may take place at different prices there is a common price for all trades in a call market. D. none of the above Eun - Chapter 13 #57 Topic: Market Structure, Trading Practices, and Costs

58.

Which type of trading system is desirable for actively traded issues? A. Continuous trading systems B. Call trading systems C. Crowd trading systems D. None of the above Eun - Chapter 13 #58 Topic: Market Structure, Trading Practices, and Costs

59.

Call markets and crowd trading offer advantages for __________ because they mitigate the possibility of sparse order flow over short time periods. A. thinly traded issues B. actively traded issues C. stocks but not bonds D. None of the above Eun - Chapter 13 #59 Topic: Market Structure, Trading Practices, and Costs

60.

The over-the-counter (OTC) market is a dealer market. Almost all OTC stocks trade on the National Association of Security Dealers Automated Quotation System (NASDAQ), which is a computerlinked system that shows A. the limit orders of all available counterparties. B. the last price at which a security was sold. C. the bid (buy) and ask (sell) prices of all dealers in a security. D. the bid (sell) and ask (buy) prices of all dealers in a security. Eun - Chapter 13 #60 Topic: Market Structure, Trading Practices, and Costs

61.

On the NYSE, limit order prices receive preference in establishing the posted bid and ask prices if they are more favorable than the specialist's. Therefore A. a specialist must fill a limit order, if possible, from his own account before trading the flow of public orders. B. specialists must fill a limit order, if possible, from the flow of public orders before trading for his own account. C. a specialist must change his posted bid and ask prices to reflect the available limit orders. Eun - Chapter 13 #61 Topic: Market Structure, Trading Practices, and Costs

62.

The large exchange markets in the United States are A. agency markets. B. call markets. C. auction markets. D. agency/auction markets. Eun - Chapter 13 #62 Topic: Market Structure, Trading Practices, and Costs

63.

"Call market" and "crowd trading" take place on A. a non-continuous exchange trading system. B. a continuous trading exchange system. C. non-continuous markets and continuous markets, respectively. D. continuous markets and non-continuous markets, respectively. Eun - Chapter 13 #63 Topic: Market Structure, Trading Practices, and Costs

64.

Comparing agency versus dealer markets, which combination of the following statements is true: (i) - In a "dealer market," the broker takes the client's order through the agent, who matches it with another public order. (ii) - In an "agency market," the broker takes the trade through the dealer, who participates in trades as a principal by buying and selling the security for his own account. (iii) - In an "agency market," the broker takes the client's order through the agent, who matches it with another public order. (iv) - In a "dealer market," the broker takes the trade through the dealer, who participate in trades as a principal by buying and selling the security for his own account. (v) - An agent can be viewed as a "broker's broker." (vi) - A dealer can be viewed as a "broker's broker." A. (i), (ii), and (v) B. (i), (ii), and (vi) C. (iii), (iv), and (v) D. (iii), (iv), and (vi) Eun - Chapter 13 #64 Topic: Market Structure, Trading Practices, and Costs

65.

A market-value index A is calculated such that the proportion of the index a stock represents is determined by its proportion . of the total market capitalization of all stocks in the index. B. is calculated as the average price of all the stocks in the index that trade that day, one example is the NASDAQ. C. is calculated like the DJIA. D. none of the above Eun - Chapter 13 #65 Topic: International Equity Market Benchmarks

66.

Transactions in shares of the iShares Funds will typically generate tax consequences. This is because A. iShares Funds are obliged to distribute portfolio gains to shareholders. B. iShares Funds are not allowed to be held in tax-qualified accounts such as IRAs. C. iShares Funds feature daily resettlement. D. none of the above Eun - Chapter 13 #66 Topic: iShares MSCI

67.

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 Eun - Chapter 13 #67 Topic: iShares MSCI

68.

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 firm's name to a broader investor and consumer groups. D. all of the above Eun - Chapter 13 #68 Topic: Cross-Listing of Shares Topic: Trading in International Equities

69.

Stock in Daimler AG, the famous German automobile manufacturer trades on both the Frankfurt Stock Exchange in Germany and on the New York Stock Exchange. On the Frankfurt bourse, Daimler closed at a price of €54.34 on Wednesday, March 5, 2008. On the same day, Daimler closed in New York at $83.55 per share. To prevent arbitrage trading between the two exchanges, the shares should trade at the same price when adjusted for the exchange rate. The $/€ exchange rate on March 5 was $1.5203/€1.00. Thus, €54.34 × $1.5203/€ = $82.61, while the closing price in New York was $83.55. The difference is easily explainable by the fact that A. transactions costs exceeded the price difference, so no arbitrage was possible even for market makers. B. no one noticed the arbitrage that day, but in a day or so the opening price will adjust. C the New York market closes several hours after the Frankfurt exchange, and thus market prices or . exchange rates had changed slightly. D. none of the above Eun - Chapter 13 #69 Topic: Cross-Listing of Shares Topic: Trading in International Equities

70.

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. Eun - Chapter 13 #70 Topic: Cross-Listing of Shares Topic: Trading in International Equities

71.

Advantages of cross-listing include: A. This decision provides their shareholders with a higher degree of protection than may be available in the home country. B. This decision can be a signal of the company's commitment to shareholder rights. C. This may make investors both at home and abroad more willing to provide capital and to increase the value of the pre-existing shares. D. All of the above Eun - Chapter 13 #71 Topic: Cross-Listing of Shares Topic: Trading in International Equities

72.

"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 Eun - Chapter 13 #72 Topic: Yankee Stock Offerings

73.

Which factors fuel the sale of "Yankee" stock offerings? A. Privatization by many Latin American and Eastern European government-owned companies. B. The rapid growth in the economies of the developing world. C. The expected large demand for new capital by Mexican companies now that NAFTA has been approved. D. All of the above Eun - Chapter 13 #73 Topic: Yankee Stock Offerings

74.

Which factors appear to be fueling the sale of Yankee stocks? A. The push for privatization by many Latin American and Eastern European government-owned companies. B. The rapid growth in the economies of the developing countries. C. The large demand for new capital by Mexican companies following approval of the North American Free Trade Agreement. D. All of the above Eun - Chapter 13 #74 Topic: Yankee Stock Offerings

75.

Following monetary union and the advent of the euro: A. The countries of the European union have enacted common securities regulation. B. A pan-European stock exchange has developed in London, similar to the NYSE in scope and trading practices. C. Development of a common securities regulations, even among the countries of the European Union, has not as yet occurred. D. None of the above Eun - Chapter 13 #75 Topic: The European Stock Market

76.

The European Stock Exchange, comparable in volume to the NYSE A. is located in Milan. B. is located in London. C. is located in Frankfurt. D. none of the above Eun - Chapter 13 #76 Topic: The European Stock Market

77.

The first ADRs began trading ________ as a means of eliminating some of the risks, delays, inconveniences, and expenses of trading the actual shares. A. in 1997 B. in 1987 C. in 1977 D. in 1927 Eun - Chapter 13 #77 Topic: American Depository Receipts

78.

American Depository Receipt (ADRs) represent foreign stocks A. denominated in U.S. dollars that trade on European stock exchanges. B. denominated in U.S. dollars that trade on a U.S. stock exchange. C. denominated in a foreign currency that trade on a U.S. stock exchange. D. non-registered (bearer) securities. Eun - Chapter 13 #78 Topic: American Depository Receipts

79.

Yankee stocks A. often trade as ADRs and have higher risks than trading the actual shares. B. often trade as ADRs and have lower risks than trading the actual shares. C. are bank receipts representing a multiple of foreign shares deposited in a U.S. bank. D. both b and c Eun - Chapter 13 #79 Topic: American Depository Receipts

80.

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. depository's custodian. D. all of the above Eun - Chapter 13 #80 Topic: American Depository Receipts

81.

Sponsored ADRs A. are 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 Eun - Chapter 13 #81 Topic: American Depository Receipts

82.

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 Eun - Chapter 13 #82 Topic: American Depository Receipts

83.

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 Avionelle ADR? Assume that transactions costs are negligible. A. $63 B. $32.14 C. $45 D. $45.50 Eun - Chapter 13 #83 Topic: American Depository Receipts

84.

In the London market, Rolls-Royce stock closed at £0.875 per share. On the same day, the British Pound sterling to the U.S. dollar spot exchange rate was £0.6366/$1.00. Rolls Royce trades as an ADR in the OTC market in the United States. Five underlying Rolls-Royce shares are packaged into one ADR. The no-arbitrage U.S. price of one ADR is A. $4.87. B. $5.87. C. $6.87. D. $7.87. Eun - Chapter 13 #84 Topic: American Depository Receipts

85.

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 Eun - Chapter 13 #85 Topic: American Depository Receipts

86.

In the London market, Rolls-Royce stock closed at £0.875 per share. On the same day, the British Pound sterling to the U.S. dollar spot exchange rate was £0.6366/$1.00. Rolls Royce trades as an ADR in the OTC market in the United States. Five underlying Rolls-Royce shares are packaged into one ADR. 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 Eun - Chapter 13 #86 Topic: American Depository Receipts

87.

In the Frankfurt market, Aldi stock closed at €5 per share. On the same day, the euro U.S. dollar spot exchange rate was €.625/$1.00. Aldi trades as an ADR in the OTC market in the United States. Five underlying Aldi shares are packaged into one ADR. The no-arbitrage U.S. price of one ADR is A. €25.00. B. $15.625. C. $40. D. None of the above. Eun - Chapter 13 #87 Topic: American Depository Receipts

88.

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 Eun - Chapter 13 #88 Topic: Global Registered Shares

89.

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 Eun - Chapter 13 #89 Topic: Factors Affecting International Equity Returns

90.

Cross-correlations among major stock markets and exchange markets are A. relatively high. B. relatively low. C. essentially perfect. D. practically zero. Eun - Chapter 13 #90 Topic: Factors Affecting International Equity Returns

91.

Macroeconomic factors affecting international equity returns include A. exchange rate changes. B. interest rate differentials. C. changes in inflationary expectations. D. all of the above Eun - Chapter 13 #91 Topic: Macroeconomic Factors

92.

Changes in exchange rates A. explain a larger portion of the variability foreign bond indexes than foreign equity indexes. B. do not affect all foreign equity markets equally. C. do affect dollar-denominated foreign equity returns, but this risk can be hedged. D. all of the above Eun - Chapter 13 #92 Topic: Exchange Rates

93.

Calculate the dollar-based percentage return an American would have if he bought a British stock at ₤50 per share and sold it one year later at ₤60. The spot exchange rate one year ago was $1.50 = ₤1 and the spot rate prevailing at the end of the year was $1.20 = ₤1. A. 36% gain B. 20% gain C. 4% loss D. 9.6% gain E. None of the above Eun - Chapter 13 #93 Topic: Exchange Rates

94.

Calculate the dollar-based percentage return an American would have if he bought a German stock at €50 per share and sold it one year later at €60. The spot exchange rate one year ago was $1.50 = €1 and the spot rate prevailing at the end of the year was $1.70 = €1. A. 36% gain B. 26.47% gain C. 4% loss D. 9.6% gain E. None of the above Eun - Chapter 13 #94 Topic: Exchange Rates

95.

Decompose the return an American would have if he had bought a German stock at €100 per share and sold it one year later at €120. The spot exchange rate one year ago was $1.50 = €1 and the spot rate prevailing at the end of the year was $1.55 = €1. A. 24% total return; 20% asset return; 4% attributable to exchange rate changes B. 20% total return; 16.77% asset return; 3.23% attributable to exchange rate changes C. 24% total return; 20% asset return; 3.33% attributable to exchange rate changes D. None of the above Eun - Chapter 13 #95 Topic: Exchange Rates

96.

A common set of factors that affect equity returns include A macroeconomic variables that influence the overall economic environment in which the firm issuing . the security conducts its business. B exchange rate changes between the currency of the country issuing the stock and the currency of . other countries where suppliers, customers, and investors of the firm reside. C. the industrial structure of the country in which the firm operates. D. all of the above Eun - Chapter 13 #96 Topic: Industrial Structure

97.

Asprem (1989) found that changes in industrial production, employment, and imports, the level of interest rates, and an inflation measure explained only a small portion of the variability of equity returns for 10 European countries, but that substantially more of the variation was explained by A. an international market index. B. changes in exchange rates. C. the Herfindahl index. D. the 4-firm concentration ratio. Eun - Chapter 13 #97 Topic: Industrial Structure

98.

Solnik (1984) examined the effect of exchange rate changes, interest rate differentials, the level of the domestic interest rate, and changes in domestic inflation expectations. He found that A. international monetary variables had only weak influence on equity returns in comparison to domestic variables. B. international monetary variables had a stronger influence on equity returns in comparison to domestic variables. C. international monetary variables had no influence at all on equity returns. D. none of the above Eun - Chapter 13 #98 Topic: Industrial Structure

99.

Adler and Simon (1986) examined the exposure of a sample of foreign equity and bond index returns to exchange rate changes. They found that A changes in exchange rates generally explained a smaller portion of the variability of foreign bond . indexes than foreign equity indexes. B changes in exchange rates generally explained none of the variability of foreign bond indexes but . completely explained the variability in foreign equity indexes. C. changes in exchange rates generally explained a larger portion of the variability of foreign equity indexes than foreign bond indexes. D.changes in exchange rates generally explained a larger portion of the variability of foreign bond indexes than foreign equity indexes. Eun - Chapter 13 #99 Topic: Industrial Structure

100.

Studies examining the influence of industrial structure on foreign equity returns A. conclusively show a connection. B. have been inconclusive. C. show that industrialized economies outperform lesser developed economies. D. none of the above Eun - Chapter 13 #100 Topic: Industrial Structure

13 Summary Category Eun - Chapter 13 Topic: A Statistical Perspective Topic: American Depository Receipts Topic: Cross-Listing of Shares Topic: Exchange Rates Topic: Factors Affecting International Equity Returns Topic: Global Registered Shares Topic: Industrial Structure Topic: International Equity Market Benchmarks Topic: iShares MSCI Topic: Macroeconomic Factors Topic: Market Capitalization of Developed Countries Topic: Market Capitalization of Developing Countries Topic: Market Structure, Trading Practices, and Costs Topic: Measures of Liquidity Topic: Measures of Market Concentration Topic: The European Stock Market Topic: Trading in International Equities Topic: Yankee Stock Offerings

# of Questions 100 3 11 4 4 2 1 5 1 2 1 1 6 34 15 5 2 4 3