Student

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
C. the on-the-run 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

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
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.
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?
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.
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.
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.
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.
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.
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
25. Many of the larger the larger emerging equity markets (e.g. Korea, India)
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.
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.
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.
30. The smaller the concentration percentage,
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.
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
C. the broader the investor base across a number of different shares and industries.
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 allowedfilling the order for more shares.
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.
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.
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
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
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 creditthe 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.
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.
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.
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.
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
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
(iv) - In a "dealer market," the broker takes the trade through the dealer, who participate in trades as a
(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.
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.
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.
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.
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.
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.
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.
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.
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
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
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.
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
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.
13 Key
1.
In a dealer market, the broker takes the trade through the dealer, who participates in trades as a
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
3.
The sale of new common stock by corporations to initial investors occurs in

C. the OTC market.
Eun - Chapter 13 #3
Topic: A Statistical Perspective
4.
The sale of previously issued common stock traded between investors occurs in
C. the on-the-run market.
Eun - Chapter 13 #4
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.
Eun - Chapter 13 #5
6.
The market capitalization of the developed world

Eun - Chapter 13 #6
Topic: Market Capitalization of Developed Countries
7.
The market capitalization of the developing 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
Eun - Chapter 13 #8
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
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.
Eun - Chapter 13 #10
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?

Topic: Measures of Liquidity
14.
Which investment is likely to be the least 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
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
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.
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.
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
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.
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.
23.
Many of the small foreign equity markets (e.g. Chile, Sri Lanka)
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.
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
25.
Many of the larger the larger emerging equity markets (e.g. Korea, India)
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.
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,

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.
30.
The smaller the concentration percentage,

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.
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
B. the less opportunity a global investor has to include shares from that county in an internationally
C. the broader the investor base across a number of different shares and industries.
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-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 allowedfilling the order for more shares.
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.
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.
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.
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.
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.
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.
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 creditthe 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.
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.
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.
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.
58.
Which type of trading system is desirable for actively traded issues?

A. Continuous trading systems
B. Call trading systems
C. Crowd trading systems
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
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.
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
(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
(iv) - In a "dealer market," the broker takes the trade through the dealer, who participate in trades as a
(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.
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.
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.
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
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.
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.
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
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.
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.
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
Topic: American Depository Receipts
78.
American Depository Receipt (ADRs) represent foreign stocks

A. denominated in U.S. dollars that trade on European stock exchanges.
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.
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
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
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.
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
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
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
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
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
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
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.
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.
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
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.
13 Summary
Category
Eun - Chapter 13
Topic: Global Registered Shares
Topic: International Equity Market Benchmarks
Topic: iShares MSCI
Topic: Macroeconomic Factors
Topic: Market Capitalization of Developed Countries
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13

The sale of new common stock by corporations to initial investors occurs in

A "primary" stock market is

The market capitalization of the developed world

The market capitalization of the developing world

Investment in foreign equity markets

28. The smaller the concentration percentage,

50. A crowd of floor traders on the NYSE

65. A market-value index

72. "Yankee" stock offerings are

81. Sponsored ADRs

88. Global Registered Shares

The sale of new common stock by corporations to initial investors occurs in

A "primary" stock market is

The market capitalization of the developed world

The market capitalization of the developing world

Investment in foreign equity markets

During the 1980s, cross-border equity investment was largely confined

In mutual funds, investment in emerging foreign equity markets

Which investment is likely to be the most liquid?

Which investment is likely to be the least liquid?

A liquid stock market

A measure of liquidity for a stock market is the turnover ratio; defined as

Generally, the higher the turnover ratio,

A measure of "liquidity" for a stock market is

Generally, the lower the turnover ratio,

In which type of market can liquidity "dry up"?

The smaller the concentration percentage,

The smaller the concentration percentage,

The more concentrated a national stock market is

The secondary stock markets

Price discovery in the secondary stock markets

Which of the following are true?

The advantages of a market order include the fact that

Dealers in an OTC market

The OTC market

A crowd of floor traders on the NYSE

A specialist on the NYSE

The Toronto Stock exchange

A type of noncontinuous exchange trading system is crowd trading.

Which type of trading system is desirable for actively traded issues?

The large exchange markets in the United States are

"Call market" and "crowd trading" take place on

iShares MSCI are

A firm may cross-list its share to

Advantages of cross-listing include:

"Yankee" stock offerings are

Which factors fuel the sale of "Yankee" stock offerings?

Which factors appear to be fueling the sale of Yankee stocks?

Following monetary union and the advent of the euro:

The European Stock Exchange, comparable in volume to the NYSE

American Depository Receipt (ADRs) represent foreign stocks

Global Registered Shares

Factors affecting international equity returns are

Cross-correlations among major stock markets and exchange markets are

Macroeconomic factors affecting international equity returns include

Changes in exchange rates

A common set of factors that affect equity returns include

Studies examining the influence of industrial structure on foreign equity returns

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