Deck 8: Management of Transaction Exposure

Question 1

Assume Nestle is trading for SF200 in Zurich and Nestle ADRs (4 ADRs per share)are trading for $40 on the New York Stock exchange.The current exchange rate is SF1/$ and a trader has $10,000 or the equivalent in SF.How can the trader make an arbitrage profit?

A)Buy ADRs in Zurich and sell shares in New York
B)Buy ADRs in New York and sell shares in Zurich
C)Buy shares in Zurich and sell ADRs in New York
D)Buy shares in New York and sell ADRs in Zurich

Answer 1

B

Question 2

Canadian stocks are cross-listed in the United States as:

A)American depository receipts
B)Global depository receipts
C)Ordinary shares
D)Global registered shares

Answer 2

C

Question 3

A liquid stock market is one in which

A)investors can buy and sell shares quickly at close to the current quoted prices
B)investors can buy shares quickly at close to the current quoted prices
C)investors can sell shares quickly at close to the current quoted prices
D)investors can buy and sell shares quickly above the current quoted prices

Answer 3

A

Question 4

Assume Nestle is trading for SF200 in Zurich and Nestle ADRs (4 ADRs per share)are trading for $40 on the New York Stock exchange.There is no arbitrage possible.What is the current SF/US$ exchange rate?

A)SF 0.8/$
B)SF 1/$
C)SF 1.25/$
D)SF 4/$

Question 5

American Depository Receipts have all of the following characteristics except:

A)They are bearer shares.
B)They are quoted in US dollars.
C)Dividends on ADRs are paid in US dollars.
D)ADR trades clear in three business days.

Question 6

Shares trade on foreign exchanges in all of the following forms except:

A)American depository receipts
B)Global depository receipts
C)American registered shares
D)Global registered shares

Question 7

What/who is Euronext N.V.

A)President of the Eurobank
B)Vice-president of the Eurobank
C)Stock Exchange
D)Stock Index

Question 8

A measure of "liquidity" for a stock market is

A)the turnover 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)a and b

Question 9

The major national stock market index for the Tokyo stock exchange is the

A)FTSE 100
B)DAX
C)Hang Seng
D)Nikkei 300

Question 10

Assume Nestle is trading for SF200 in Zurich and Nestle ADRs (4 ADRs per share)are trading for $40 on the New York Stock exchange.The current exchange rate is SF1/$ and a trader has $10,000 or the equivalent in SF.How much arbitrage profit can the trader make?

A)$ 200
B)$ 1250
C)$ 2500
D)No profit can be made

Question 11

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

Question 12

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

Question 13

"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

Question 14

Which ADRs are listed on a US exchange:

A)Level I only
B)Level I and II only
C)Level II and III only
D)Level III only

Question 15

The no arbitrage U.S.price of one ADR is:

A)$4.87
B)$5.87
C)$6.87
D)$7.87

Question 16

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 these

Question 17

All of the following are required criteria for a listing of a non-US company on the NYSE EXCEPT:

A)The number of publicly traded shares should be at least 2.5mln
B)Global Market Capitalization is at least $500mln
C)Annual revenue is at least $100mln
D)pre-tax income is at least $50mln

Question 18

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 these

Question 19

Which of the following statements is true?

A)In the primary market, firms sell shares to investors and in the secondary market investors sell shares to investors.
B)In the primary market, investors sell shares to investors and in the secondary market firms sell shares to investors.
C)In the primary market, firms sell shares to investors for the first time and in the secondary market firms sell shares to investors in subsequent equity issues.
D)In the primary market, investors sell shares to investors for the first time and in the secondary market investors sell shares to investors after the initial sale.

Question 20

The functions of the secondary market are all except:

A)Provide liquidity for investors
B)Price determination for traded securities
C)Provide price signals
D)Provide sell signals

Question 21

Assume that Nestle shares are trading at SF 300 in Zurich and $ 51 in New York.Each share equals 4 ADRs.The current exchange rate is SF1.5/$.If transaction costs are $1 per ADR,can you make an arbitrage profit?

Question 22

Assume that Accor shares are trading at A$2.5 in Sydney and $28 in New York.Each ADR equals 20 shares.The current exchange rate is A$1.5/$.At what transaction cost per share would there be no profit opportunity?

Question 23

What factors go into the decision to cross-list on a foreign exchange?

Question 24

Assume that Accor shares are trading at A$2.5 in Sydney and $28 in New York.Each ADR equals 20 shares.The current exchange rate is A$1.5/$.In the absence of transaction costs,can you make an arbitrage profit?

Question 25

Assume that Nestle shares are trading at SF 300 in Zurich and $ 51 in New York.Each share equals 4 ADRs.The current exchange rate is SF1.5/$.In the absence of transaction costs,can you make an arbitrage profit?