Ch013-International-Equity-Markets

Eun/Resnick4e155Eun&Resnick4eCHAPTER13InternationalEquityMarketsAStatisticalPerspectiveMarketCapitalizationofDevelopedCountriesMarketCapitalizationofDevelopingCountriesMeasuresofLiquidityMeasuresofMarketConcentrationMarketStructure,TradingPractices,andCostsInternationalEquityMarketBenchmarksiSharesMSCIInternationalFinanceinPractice:ForeignInterestinSouthAfricaTakesOffTradinginInternationalEquitiesCross-ListingofSharesYankeeStockOfferingsTheEuropeanStockMarketAmericanDepositoryReceiptsGlobalRegisteredSharesFactorsAffectingInternationalEquityReturnsMacroeconomicFactorsExchangeRatesIndustrialStructureSummaryMINICASE:SanPico’sNewStockExchangeAStatisticalPerspective1A“primary”stockmarketisa)Abiginternationally-importantmarketliketheNYSEb)Amarketwherecorporationsissuenewsharestoinitialinvestorsc)Wherebrokersandmarketmakerstraded)NoneoftheaboveAnswer:b)MarketCapitalizationofDevelopedCountries2Themarketcapofthedevelopedworlda)Isabout90percentofthemarketcapoftheentireworldb)Isabout80percentofthemarketcapoftheentireworldc)Isabout70percentofthemarketcapoftheentireworldd)Isabout60percentofthemarketcapoftheentireworldAnswer:a)Eun/Resnick4e156MarketCapitalizationofDevelopingCountries3Ingeneral,Standard&Poor’sEmergingMarketsDataBaseclassifiedastockmarketas“emerging”ifa)Itislocatedinalow-ormiddle-incomeeconomyasdefinedbytheWorldBankb)ItsinvestablemarketcapitalizationislowrelativetoitsmostrecentGNIfiguresc)a)orb)d)noneoftheaboveAnswer:c)4Investmentinforeignequitymarketsa)Isareal“backwater”infinanceb)Becamecommonpracticeinthe1980sasinvestorsdiversifiedtheirportfolios.c)Duringthe1980swaslargelyconfinedtothedevelopedworldd)AlloftheaboveAnswer:d)5Inmutualfunds,investmentinemergingforeignequitymarketsa)RepresentslessthanonepercentofinvestmentsinU.S.-basedmutualfunds.b)RepresentsaboutfivepercentofinvestmentsinU.S.-basedmutualfunds.c)RepresentsmorethantwentypercentofinvestmentsinU.S.-basedmutualfunds.d)Declinedduringthe1990sAnswer:a)MeasuresofLiquidity6Whichinvestmentislikelytobethemostliquid:a)AshareofpubliclytradedcompanytradingontheNYSE.b)AbondissuedbyaFortune500company.c)Ahouseinanicepartoftown.d)a)andb)areequallyliquidAnswer:a)Rationale:bondsreallyaren’tthatliquid—especiallywhencomparedtostocks.7Ameasureof“liquidity”forastockmarketisa)theturnoverratiob)theratioofstockmarkettransactionsoveraperiodoftimedividedbythesize,ormarketcapitalization,ofthestockmarketc)theLIBORrated)a)andb)Answer:d)Eun/Resnick4e1578Asameasureof“liquidity”a)Generally,thelowertheturnover,thegreatertheliquidityofasecondarystockmarket.b)Generally,thehighertheturnover,thegreatertheliquidityofasecondarystockmarket.c)Themoreafinancialassetgurgleswhenshookthegreatertheliquidityd)NoneoftheaboveAnswer:b)9Manyofthesmallforeignequitymarkets(e.g.Chile,SriLanka)a)Havepoorliquidityatpresent.b)Areveryliquidstockmarkets,sincethepoorpeoplelivingthereareeagertoselltheirsecurities.c)Havefairlyhighturnoverratiosindicatingstrongliquidity.d)NoneoftheaboveAnswer:a)10Ingeneralifaninvestmenta)Haspoorliquidityitshouldofferinvestorsaliquiditypremium.b)Canbesoldfairlyquicklyatafairprice,ithasgoodliquidityc)a)andb)d)NoneoftheaboveAnswer:c)11Manyofthelargerforeignequitymarkets(e.g.Korea,India)a)Havepoorliquidityatpresent.b)Areveryliquidstockmarkets,sincethepoorpeoplelivingthereareeagertoselltheirsecurities.c)Havehighturnoverratiosd)NoneoftheaboveAnswer:c)MeasuresofMarketConcentration12Themoreconcentratedanationalstockmarketisa)Thegreateropportunityaglobalinvestorhastoincludesharesfromthatcountyinaninternationallydiversifiedportfolio.b)Thelessopportunityaglobalinvestorhastoincludesharesfromthatcountyinaninternationallydiversifiedportfolio.c)Thebroadertheinvestorbaseacrossanumberofdifferentsharesandindustries.d)NoneoftheaboveAnswer:b)Eun/Resnick4e158MarketStructure,TradingPractices,andCosts13Thesecondarystockmarketsa)Arethemarketsfor“pre-owned”or“used”sharesofstockb)Providemarketabilitytoshares.c)Providepricediscoveryorsharevaluation.d)AlloftheaboveAnswer:d)14Pricediscoveryinthesecondarystockmarketsa)Occursduetothecompetitivetradingbetweenbuyersandsellers,justlikeoneBay.b)Issetonceadayattheclose.c)IssetbytheinvestmentbankersattheIPO.d)AlloftheaboveAnswer:a)15Amarketordera)Isaninstructionfromacustomertoabrokertobuyorsellatthebestpriceavailablewhentheorderisreceived(immediately)b)Isaninstructionfromacustomertoabrokertobuyorsellinaparticularmarket(e.g.NYSE).c)Isalwaysandeverywhere“fillorkill”.d)Isalwaysandeverywhere“goodtillcancelled”.Answer:a)Rationale:c)andd)aretempting,butyoushouldalwaysbesuspiciousofanswerchoicesthatinclude“alwaysandeverywhere”—there’sgottobeanexceptionsometimesorsomewhere.16Alimitordera)Isaninstructionfromacustomertoabrokertobuyorsellinataparticularprice(orbetter)b)Canbea“dayorder”—thatistheorderiscancelledifnotexecutedduringthatday’strading.c)Canbe“goodtillcancelled”.d)AlloftheaboveAnswer:d)17DealersinanOTCmarketa)Standreadytobuyatthebidandsellattheaskprice.b)Settheirownbidandaskpricesc)Donotchargecommissionsd)AlloftheaboveAnswer:d)Eun/Resnick4e15918TheOTCmarketa)Do