12.2 The Demand for Foreign Securities

12.2 The Demand for Foreign Securities: The Role of International Portfolio Investors

1) A national securities market is segmented if the required rate of return on securities in that market differs from comparable securities traded in other, unsegmented markets.

2) If a firm lies within a country with ________ or ________ domestic capital markets, it can achieve lower global cost and greater availability of capital with a properly designed and implemented strategy to participate in international capital markets.

A) liquid; segmented

B) liquid; large

C) illiquid; segmented

D) large; illiquid

3) Which of the following is NOT a contributing factor to the segmentation of capital markets?

A) excessive regulatory control

B) perceived political risk

C) anticipated foreign exchange risk

D) All of the above are contributing factors.

4) Which of the following is NOT a contributing factor to the segmentation of capital markets?

A) lack of transparency

B) asymmetric availability of information

C) lack of proper reporting of insider trading

D) All of the above are contributing factors.

 

5) Other things equal, a firm that must obtain its long-term debt and equity in a highly illiquid domestic securities market will probably have a ________.

A) relatively low cost of capital

B) relatively high cost of capital

C) relatively average cost of capital

D) cost of capital that we cannot estimate from this question

6) Relatively high costs of capital are more likely to occur in ________.

A) highly illiquid domestic securities markets

B) highly liquid domestic securities markets

C) unsegmented domestic securities markets

D) none of the above

7) Reasons that firms may find themselves with relatively high costs of capital include:

A) The firms reside in emerging countries with undeveloped capital markets.

B) The firms are too small to easily gain access to their own national securities market.

C) The firms are family owned and they choose not to access public markets and lose control of the firm.

D) All of the above.

Answer: D

8) Which of the following is NOT a portfolio diversification technique used by portfolio managers?

A) diversify by type of security

B) diversify by the size of capitalization of the securities held

C) diversify by country

D) All of the above are diversification techniques.

 

9) If all capital markets are fully integrated, securities of comparable expected return and risk should have the same required rate of return in each national market after adjusting for ________.

A) time of day and language requirements

B) political risk and time lags

C) foreign exchange risk and political risk

D) foreign exchange risk and the spot rate

10) Capital market segmentation is a financial market imperfection caused mainly by ________.

A) government constraints

B) institutional practices

C) investor perceptions

D) all of the above

11) Capital market imperfections leading to financial market segmentation include

A) asymmetric information between domestic and foreign-based investors

B) high securities transaction costs

C) foreign exchange risks

D) All of the above.

12) Capital market imperfections leading to financial market segmentation include

A) political risks

B) corporate governance differences

C) regulatory barriers

D) All of the above.

 

13) Several years ago the Danish equity market prohibited ownership of foreign securities thus few institutional analysts outside of Denmark bothered to follow Danish equity securities. This particular fact led to market segmentation due to ________.

A) taxation

B) political risk

C) asymmetric information

D) financial risk

14) Until 1981 Danish equity securities were taxed at a capital gains rate of 50% for securities held for over two years, and at a speculative gains rate of 75% for securities held for under two years. This led to market segmentation caused by ________.

A) taxation

B) political risk

C) asymmetric information

D) financial ris

) Market imperfections do not necessarily imply that national securities markets are inefficient