Deck 18: International Capital Markets

Question 1

Domestic bonds are issued and traded within the internal market of a single country and are denominated in the currency of that country.

Answer 1

True

Question 2

The two kinds of international bonds are dollar bonds and foreign bonds.

Answer 2

False

Question 3

Eurobonds are denominated in one or more currencies but are traded in external markets outside the borders of the countries issuing those currencies.

Answer 3

True

Question 4

The major function of the prospectus of a mutual fund is to describe how the fund has performed in the recent past.

Question 5

"State shares" in China are held by the government or a government-owned institution.

Question 6

Closed-end country funds are funds whose shares are traded in a single country.

Question 7

A hedge fund is a mutual fund that is used by small investors to hedge the currency risks of their globally diversified portfolios.

Question 8

The amount of money in an open-end mutual fund changes as investors buy or sell the fund.

Question 9

International bonds are traded in internal markets.

Question 10

Closed-end country funds cannot invest in countries with capital flow restrictions and hence are not useful in gaining access to restricted capital markets.

Question 11

The amount of funds under management in a closed-end mutual fund is fixed.

Question 12

"H-shares" are shares of Chinese companies traded on the Hong Kong Stock Exchange.

Question 13

Since the standardization of international accounting standards through the International Accounting Standards Committee, corporations need prepare only a single set of financial statements to satisfy their various constituencies.

Question 14

Asset allocation refers to the allocation of dividends to various investor clienteles.

Question 15

As publicly traded securities, hedge funds are closely regulated in the United States by the Securities and Exchange Commission.

Question 16

Errunza, Hogan, and Hung ["Can the Gains from International Diversification be Achieved Without Trading Abroad?" Journal of Finance, 1999] found that U.S. investors need to invest directly in foreign markets to fully achieve the benefits of international diversification.

Question 17

"B-shares" are traded on Chinese stock exchanges, but are available only to foreign investors and some selected domestic securities firms.

Question 18

Foreign bonds are issued in a local market by a foreign borrower, denominated in the local currency, and regulated by local authorities.

Question 19

Purchasing power parity ensures that the prices of closed-end country funds do not diverge substantially from their net asset values.

Question 20

Mutual funds are only sold in the United States.

Question 21

A global bond is a bond issued by a foreign borrower.

Question 22

Registered bonds retain the anonymity of the owner.

Question 23

The Japanese government takes a laissez faire or "hands-off" approach in determining which companies are allowed to issue securities in Japan.

Question 24

A General Motors Acceptance Corporation (GMAC) bond trades on the New York Stock Exchange. In which type of market is it traded?

A) a domestic market
B) a foreign market
C) an internal market
D) Two of a) through c)
E) All three of a) through c)

Question 25

Evidence on the success of market timing strategies is mixed.

Question 26

A bond issued by Air Express of the United Kingdom trades over-the-counter in the United States. In which type of market is it traded?

A) a domestic market
B) an external market
C) a fractured market
D) More than one of the above
E) None of the above

Question 27

A global bond is an international bond that trades in both the external Eurobond market as well as in one or more internal bond markets.

Question 28

The World Bank is restricted from issuing Eurobonds.

Question 29

The price-plus-accrued-interest method is the most common quotation system for bonds.

Question 30

Which of statements a) through d) about foreign bonds is FALSE?

A) Foreign bonds are denominated in the currency of the issuing company.
B) Foreign bonds are issued in a local market by a foreign borrower.
C) Foreign bonds are marketed to local residents.
D) Foreign bonds are regulated by local authorities.
E) All of the above are true.

Question 31

The European Union's Capital Adequacy Directive (CAD) specifies minimum standards governing the amount of market risk a bank or securities firm can take in relation to its capital base.

Question 32

The value of the U.S. stock market comprises more than half of world stock market capitalization.

Question 33

Which of a) through c) is a categorization of bond markets?

A) domestic versus international bond markets
B) foreign versus Eurobond markets
C) internal versus external bond markets
D) More than one of the above
E) None of the above

Question 34

Government bonds are conventionally quoted as an effective annual yield in ______.

A) continental Europe
B) Japan
C) the United States
D) More than one of the above
E) None of the above

Question 35

The most prominent bonds selling in national bond markets are foreign bonds.

Question 36

The General Agreement on Tariffs and Trade (GATT) has standardized bond price and yield quotation conventions and registration and disclosure requirements.

Question 37

The U.S. Securities and Exchange Commission (SEC) applies the same registration and disclosure requirements to Eurobonds as it does to domestic bonds.

Question 38

Outside of the People's Republic of China, the largest number of Chinese stocks are traded in ______.

A) Hong Kong
B) New York
C) Seoul, Korea
D) Singapore
E) Tokyo, Japan

Question 39

The largest stock exchange in India is located in ______.

A) Bhopal
B) Mumbai
C) Calcutta
D) Karachi
E) New Delhi

Question 40

Trade migrates toward _______.

A) domestic markets
B) international markets
C) liquidity
D) the earth's magnetic poles
E) volatility

Question 41

Portfolios can be diversified internationally through each of the following EXCEPT

A) direct purchase of foreign securities
B) exchange-traded funds
C) investment in the shares of multinational corporations
D) investment in domestic government bonds
E) professionally managed mutual funds

Question 42

In order to operate in other member states, the EU's Investment Securities Directive (ISD) requires that firms satisfy several conditions. Which of a) through d) is NOT one of those conditions?

A) The firm's directors must be sufficiently experienced.
B) The firm must appropriately safeguard their clients' funds.
C) The firm must follow International Accounting Standards.
D) The firm must meet the EU's capital adequacy requirements.
E) All of the above are conditions of the ISD

Question 43

Closed-end country funds can sell at prices that differ from their net asset value because of ______.

A) cross-market arbitrage
B) heterogeneous investor expectations
C) portfolio maximization in the presence of investment restrictions
D) All three of the above
E) Two of the above

Question 44

Shares of a foreign corporation that are traded domestically and pay dividends and capital gains in the domestic currency are called ______.

A) capital shares
B) convertible shares
C) depository receipts
D) Euroshares
E) foreign shares

Question 45

Shares of a foreign corporation issued directly to U.S. investors through a transfer agent but denominated in the currency of the issuing company are called ______.

A) American shares
B) American depository receipts
C) Yankee stocks
D) More than one of the above None of the above

Question 46

In the United States, private placements as defined by the Securities Act of 1933 conform to each of conditions a) through d) EXCEPT

A) investors are capable of sustaining losses
B) investors purchase securities for their own portfolios and not for resale
C) sold to large and sophisticated investors
D) sold to only a few investors
E) Each of the above is a necessary condition

Question 47

Chinese shares that are traded on the New York Stock Exchange are called ______.

A) A-shares
B) B-shares
C) H-shares
D) U-shares

Question 48

Common explanations for why restricted and unrestricted share prices diverge include each of a) through d) EXCEPT

A) asymmetric information
B) attempts to maximize mean-variance efficiency subject to investment restrictions
C) capital adequacy
D) investor sentiment
E) All of the above are common explanations

Question 49

Quantitative inputs to portfolio analysis include which of a) through c)?

A) correlations
B) expected returns
C) variances
D) Three of the above
E) Two of the above

Question 50

Impediments to purchase of foreign shares directly in a foreign market include each of a) through d) EXCEPT

A) cross-border differences in accounting conventions and tax laws
B) difficulty in obtaining or interpreting information, or both
C) higher transaction costs including commissions
D) the inconvenience of receiving dividends in a foreign currency
E) Each of the above is an impediment

Question 51

Errunza, Hogan, and Hung ["Can the Gains from International Diversification be Achieved Without Trading Abroad?" Journal of Finance, 1999] found that ______.

A) the benefits of international diversification have remained fairly constant over time.
B) the benefits of international diversification to U.S. investors depends on the proportion of foreign stocks held in the investors' portfolios.
C) U.S. investors can replicate the diversification benefits of foreign market returns with securities that are already traded in the United States.
D) U.S. investors need to invest directly in foreign markets to fully achieve the benefits of international diversification.
E) None of the above

Question 52

Index funds often specialize in a particular ______.

A) company
B) country
C) industry
D) More than one of the above
E) None of the above (index funds track the market portfolio)

Question 53

Actively managed investment funds follow which of these investment strategies?

A) asset allocation
B) buy and hold
C) security selection
D) all three of the above
E) Two of the above

Question 54

How can multinational corporations respond to a demand on the part of foreign shareholders for financial accounting information?

A) Do nothing.
B) Prepare convenience translations of financial statements.
C) Prepare supplementary financial statements based on International Accounting Standards.
D) Prepare supplementary financial statements based on U.S. accounting standards.
E) Each of the above is a possible response

Question 55

The European Union's Markets in Financial Instruments Directive (MiFID) contains provisions related to each of a) through d) EXCEPT

A) capital adequacy
B) investor protection
C) operator (dealer) protection
D) transparency and market integrity
E) All of the above are conditions of the MiFID

Question 56

Which of a) through d) is NOT a vehicle for investing in foreign stock markets?

A) Eurodollar contracts
B) index futures contracts
C) index option contracts
D) stock index swap contracts
E) All of the above can be used for investing in foreign stock markets