MULTINATIONAL BUSINESS FINANCE
COMPREHENSIVE EXAMINATION TEST
COMPLETE QUESTIONS AND CORRECT
ANSWERS
●● Generally, the higher the turnover ratio,
Answer: the more liquid the secondary stock market, indicating ease in
trading.
●● A measure of "liquidity" for a stock market is
Answer: the ratio of stock market transactions over a period of time
divided by the size, or market capitalization, of the stock market.
●● Advantages of cross-listing include
Answer: providing their shareholders with a higher degree of protection
than may be available in the home country.
a possible signal of the company's commitment to shareholder rights.
possibly making investors, both at home and abroad, more willing to
provide capital and to increase the value of the pre-existing shares.
●● "Yankee" stock offerings are
Answer: dollar-denominated shares in foreign companies originally sold
to U.S. investors.
,●● American Depository Receipt (ADRs) represent foreign stocks
Answer: denominated in U.S. dollars that trade on a U.S. stock
exchange.
●● Sponsored ADRs
Answer: are created by a bank at the request of the foreign company that
issued the underlying security.
can trade on the NASDAQ.
can trade on the NYSE
●● 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.
Answer: $63
Solve the following proportion for X: (X / 45) = (1.), where X =
$63.
●● Global Registered Shares
Answer: are created when a MNC issues shares globally.
, purchased on one exchange (say NYSE) is fully fungible with shares
purchased on another exchange (e.g., Frankfurt Stock Exchange).
can trade in multiple currencies.
●● 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.
Answer: 4 percent loss
First, determine the cost of buying the stock by solving the proportion
for X: (50 / X) = (.5), where X = $75. Next, determine what the
American sold the stock for by solving the proportion for X: (60 / X) =
(.2), where X = $72. The percentage change may be found by the
following: (72 - 75) / 75 = -0.04.
●● Examples of "single-currency interest rate swap" and "cross-
currency interest rate swap" are:
Answer: fixed-for-floating rate interest rate swap, where one
counterparty exchanges the interest payments of a floating-rate debt
obligations for fixed-rate interest payments of the other counter party, as
well as fixed-for-fixed rate debt service (currency swap), where one
counterparty exchanges the debt service obligations of a bond
denominated in one currency for the debt service obligations of the other
counterparty denominated in another currency.
COMPREHENSIVE EXAMINATION TEST
COMPLETE QUESTIONS AND CORRECT
ANSWERS
●● Generally, the higher the turnover ratio,
Answer: the more liquid the secondary stock market, indicating ease in
trading.
●● A measure of "liquidity" for a stock market is
Answer: the ratio of stock market transactions over a period of time
divided by the size, or market capitalization, of the stock market.
●● Advantages of cross-listing include
Answer: providing their shareholders with a higher degree of protection
than may be available in the home country.
a possible signal of the company's commitment to shareholder rights.
possibly making investors, both at home and abroad, more willing to
provide capital and to increase the value of the pre-existing shares.
●● "Yankee" stock offerings are
Answer: dollar-denominated shares in foreign companies originally sold
to U.S. investors.
,●● American Depository Receipt (ADRs) represent foreign stocks
Answer: denominated in U.S. dollars that trade on a U.S. stock
exchange.
●● Sponsored ADRs
Answer: are created by a bank at the request of the foreign company that
issued the underlying security.
can trade on the NASDAQ.
can trade on the NYSE
●● 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.
Answer: $63
Solve the following proportion for X: (X / 45) = (1.), where X =
$63.
●● Global Registered Shares
Answer: are created when a MNC issues shares globally.
, purchased on one exchange (say NYSE) is fully fungible with shares
purchased on another exchange (e.g., Frankfurt Stock Exchange).
can trade in multiple currencies.
●● 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.
Answer: 4 percent loss
First, determine the cost of buying the stock by solving the proportion
for X: (50 / X) = (.5), where X = $75. Next, determine what the
American sold the stock for by solving the proportion for X: (60 / X) =
(.2), where X = $72. The percentage change may be found by the
following: (72 - 75) / 75 = -0.04.
●● Examples of "single-currency interest rate swap" and "cross-
currency interest rate swap" are:
Answer: fixed-for-floating rate interest rate swap, where one
counterparty exchanges the interest payments of a floating-rate debt
obligations for fixed-rate interest payments of the other counter party, as
well as fixed-for-fixed rate debt service (currency swap), where one
counterparty exchanges the debt service obligations of a bond
denominated in one currency for the debt service obligations of the other
counterparty denominated in another currency.
