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Banking
Q:
What conditions would you, as a buyer, suggest be included in the agreement of purchase and sale that might minimize the potential risk mentioned in your answer to the second question? Be specific.
Q:
Which of the following statements about private placements are true?
A) Private placements are more common for the sale of bonds than for stocks.
B) Investment bankers, though not required for a private placement, often facilitate the transaction.
C) Investment bankers help the issuing firm file the paperwork required by the SEC.
D) All of the above are true.
E) Only A and B of the above are true.
Q:
The U.S. and European firms are making substantial investments (including M&As) in China. How should the Chinese government react to this rebuff?
Q:
The buyers of private placement securities are most likely to be ________.
A) insurance companies
B) pension funds and mutual funds
C) commercial banks
D) all of the above
E) only A and B of the above
Q:
How might the Chinese have been able to persuade U.S. regulatory authorities to approve the transaction?
Q:
Should CNNOC have been permitted to buy Unocal? Why? Why not?
Q:
The buyers of private placement issues are most likely to be ________.
A) insurance companies
B) pension funds
C) investment banks
D) all of the above
E) only A and B of the above
Q:
What problems do you think Vodafone AirTouch might experience if they attempt to introduce what they view as best operating practices to the Mannesmann culture? How might these challenges be overcome? Be specific.
Q:
The most active investment banking firm in the private placement market is ________.
A) Merrill Lynch
B) Lehman Brothers
C) Goldman Sachs
D) Morgan Stanley
Q:
Do you think that Vodafone AirTouch conceded too much to the labor unions and Mannesmanns management to get the deal done? Explain your answer.
Q:
Private placements
A) do not require the services of investment bankers.
B) need not be registered with the SEC.
C) are more common in the sale of stocks than for bonds.
D) all of the above.
E) are only A and B of the above.
Q:
Do you think the use of all stock, rather than cash or a combination of cash and stock, to acquire Mannesmann helped or hurt Vodafone AirTouchs shareholders? Explain your answer.
Q:
Under best efforts underwriting, the underwriter
A) pays for the entire security issue.
B) sells the security on a commission basis.
C) spreads the risk among different brokerage houses.
D) makes a special appeal to the Securities and Exchange Commission to delay the issue.
Q:
In a ________ agreement, the investment banker makes no guarantee regarding the price the issuing firm will receive, but agrees to sell the securities on a commission basis.
A) best efforts
B) brokered
C) private-placement
D) jump-start
Q:
Both firms were pursuing a similar strategy of expanding their geographic reach. Does this strategy make sense? Why/why not? What are the risks associated with this strategy?
Q:
Often investment bankers will form a group, each one buying only a portion of the new securities to be issued. Such a group is called an underwriting ________.
A) alliance
B) syndicate
C) association
D) guild
Q:
Who do you think negotiated the best deal for their shareholders, Chris Gent or Klaus Esser? Explain your answer in terms of short and long-term impacts.
Q:
The largest U.S. underwriter of global debt and equity issues, as of 2009, was ________.
A) Merrill Lynch
B) J.P. Morgan
C) Morgan Stanley
D) Goldman Sachs
Q:
Discuss how cross-border transactions complicate the negotiation of the agreement of purchase and sale as well as due diligence. Be specific.
Q:
Discussion Questions 1. With the world’s largest and fastest-growing domestic car market, why do you believe Chinese carmakers are interested in expanding internationally? 2. What factors are likely to motivate Geely and other Chinese carmakers to ensure strict enforcement of intellectual property laws?
Q:
Investment banks may lose ________ if new securities issues are ________.
A) large amounts of money; oversubscribed
B) large amounts of money; fully subscribed
C) future business; oversubscribed
D) future business; undersubscribed
Q:
From an investment banker's perspective, the best outcome occurs when a new issue is ________.
A) undersubscribed
B) fully subscribed
C) oversubscribed
D) syndicated
Q:
Why do you believe that Dofascos board was concerned about a lengthy auction process? discussion of the MittalArcelor transaction.
Q:
Why do you believe that Dofascos share price rose above ThyssenKrupps offer price per share immediately following the announcement of the bid?
Q:
Most investment banks are attached to
A) large commercial banks.
B) large brokerage houses.
C) finance companies.
D) large nonfinancial corporations.
Q:
Investment banks advertise upcoming securities offerings with block ads in the Wall Street Journal. Such an ad is called a ________.
A) tombstone
B) marker
C) prospectus
D) registration statement
Q:
What do you think was the logic underlying Arcelor and ThyssenKrupps bidding strategies? Be specific.
Q:
By law, investors must be given a portion of the registration statement before they can invest in a new security. This document is called a ________.
A) prospectus
B) proxy statement
C) fiduciary warrant
D) debenture
Q:
What were the motives for Arcelors and ThyssenKrupps interest in Dofasco?
Q:
SEC registration is
A) required for all securities.
B) required if less than $1.5 million in securities are issued per year.
C) not required for securities that are sold through a private placement.
D) required if the securities mature in less than one year.
E) not required if securities are underwritten by a reputable investment bank.
Q:
Describe some of the ways in which CNOOC could protect its rights as a minority investor in the joint venture project with Chesapeake? Be specific.
Q:
The registration statement the securities underwriter files with the SEC contains information about
A) the firm's financial condition, management, competition, industry, and experience.
B) how the funds will be used.
C) management's assessment of the risk of the securities.
D) all of the above.
E) only A and B of the above.
Q:
Compare and contrast the Chesapeake and Unocal transactions. Be specific.
Q:
The process of underwriting a stock or bond issue requires that the investment bank
A) assure investors that the issue will provide them a high return.
B) purchase the entire issue at a predetermined price if the quantity demanded by consumers is insufficient at the predetermined price.
C) purchase the entire issue at a predetermined price and then resell it in the market.
D) do both A and B of the above.
Q:
To what extent does the Chesapeake transaction represent the benefits of free global trade and capital movements? In what way might it reflect the limitations of free trade?
Q:
Investment banks find it less difficult to price securities if the firm has prior issues currently selling in the market, called ________.
A) secondary issues
B) seasoned issues
C) outstanding issues
D) experienced issues
Q:
What real options (see Chapter 8) might be implicit in CNNOC’s investment in Chesapeake? Be specific.
Q:
Tasks that investment bankers perform when acting as underwriters to sell securities to the public include:
A) pricing the security.
B) preparing the filings required by the Securities and Exchange Commission.
C) arranging for the security to be rated.
D) all of the above.
E) only A and B of the above.
Q:
Do you believe that countries should permit foreign ownership of vital scarce natural resources? Explain your answer.
Q:
Which is not an activity of investment banks?
A) underwriting new issues of corporate stocks and bonds
B) acting as deal makers in mergers
C) acting as intermediaries in the buying and selling of businesses or parts of businesses
D) underwriting new issues of federal government bonds
Q:
Which of the following represent common components of the global capital asset pricing model when applied to valuing firms in emerging countries?
a. Risk free rate of return
b. Specific countrys risk premium
c. Firm size risk premium
d. Emerging country firms global beta
e. All of the above
Q:
The primary function of investment banks is to
A) extend credit to stock brokers and dealers.
B) extend credit to investors.
C) extend credit to corporations.
D) help corporations issue new securities.
Q:
For an acquirer evaluating a target firm in another country, the targets cash flows can be expressed in which of the following ways?
a. Expressed in the home countrys currency
b. Local countrys currency
c. In real terms
d. A & B only
e. A, B, and C
Q:
The primary function of investment banks is
A) the bundling of deposits into loans.
B) extending long-term credit to other financial institutions.
C) helping corporations raise funds.
D) providing credit to firms engaged in international trade.
Q:
The most common form of payment involving non-U.S. firms engaged in M&As is
a. Stock
b. Cash
c. Cash and stock
d. Debt
e. Cash, stock and debt
Q:
Investment banks sell ________ securities to the public, and brokerage firms sell ________ securities to the public.
A) new; existing
B) new and existing; existing
C) existing; new
D) existing; new and existing
Q:
Which of the following represent common political and economic risks in entering an emerging market?a. Excessive local government regulationb. Confiscatory tax ratesc. Lack of enforcement of contractsd. Fluctuating exchange ratese. All of the above
Q:
The Glass-Steagall Act
A) separated commercial and investment banking.
B) made it illegal for a commercial bank to buy or sell securities on behalf of its customers.
C) made it illegal for investment banks to engage in the underwriting of corporate securities.
D) did all of the above.
E) did only A and B of the above.
Q:
Which of the following represent common law countries?
a. United Kingdom
b. Australia
c. India
d. Pakistan
e. All of the above
Q:
An investment bank is a financial institution that
A) bundles small deposits into larger loans.
B) helps corporations raise funds.
C) holds most of its assets in commercial paper.
D) does all of the above.
E) does only A and B of the above.
Q:
Greenfield operations represent an appropriate entry if which of the following is true?
a. Entry barriers are low
b. Cultural differences are high
c. Entrant has limited multinational experience
d. Entrant is risk adverse
e. A and B only
Q:
Between 1995 and 2009, the amount of credit default swaps (CDSs) exploded, along with the marketing of securitized mortgages. By their peak in 2008, there were about ________ of CDSs outstanding.
A) $62 million
B) $62 billion
C) $6.2 trillion
D) $62 trillion
Q:
Which of the following is not true of licensing?
a. Licensing allows a firm to purchase the right to manufacture and sell another firms products within a specific country or set of countries.
b. The licensor is normally paid a royalty on each unit sold.
c. Licensors have considerable control the manufacturing and marketing of their products marketed in foreign countries.
d. The licensee takes the risks and makes the investments in facilities for manufacturing, marketing and distribution of goods and services.
e. Licensing is an increasingly popular entry mode for smaller firms with insufficient capital and limited brand recognition.
Q:
Which of the following is not true of exporting as a market entry strategy?
a. Exporting does not require the expense of establishing local operations
b. Exporters do not need to establish some means of marketing and distributing their products at the local level
c. Exporters incur high transportation costs
d. Exporters may be adversely impacted by exchange rate fluctuations
e. Exporters may be adversely impacted by tariffs placed on imports into the local country
Q:
During the 2007-2009 financial crisis, state and local governments now found their interest costs rising. Which of the following were causes of this?
A) lower tax revenues because of the weaker economy
B) weakened value of monoline insurance guarantees on their debt
C) both A and B
D) none of the above
Q:
Local country firms may be interested in alliances for which of the following reasons?
a. To gain access to the technology
b. To gain access to a widely recognized brand name
c. To gain access to innovative products
d. A, B, and C
e. A and B only
Q:
A credit default swap, or CDS, is essentially
A) insurance against default on a financial instrument.
B) a method for swapping credit agreements between banks.
C) a method for companies in default to swap credit ratings.
D) insurance against the default of a party in a swap agreement.
Q:
Which of the following represent common international market entry strategies?
a. Mergers and acquisitions
b. Licensing
c. Exporting
d. Greenfield or solo ventures
e. All of the above
Q:
What insurance protects against liability for harm the insured may cause to others as a result of product failure or accidents?
A) property insurance
B) health insurance
C) life insurance
D) casualty insurance
Q:
Excess capacity in many industries often drives M&A activity as firms strive to achieve which of the following?
a. Greater economies of scale
b. Greater economies of scope
c. Greater pricing power with customers
d. Greater pricing power with suppliers
e. All of the above
Q:
Which life insurance policy usually requires the insured to pay a level premium for the duration of the policy, and the overpayment accumulates as a cash value that can be borrowed by the insured at reasonable rates?
A) whole life
B) term
C) universal life
D) none of the above
Q:
Firms are likely to achieve significant diversification by investing in all of the following except for
a. Different but uncorrelated industries in the same country
b. Different companies in the same industry in the same country
c. The same industries in different countries
d. Different industries in different countries.
e. Different companies in different industries in the different countries
Q:
The broad categories of life insurance products including which of the following?
A) term
B) whole life
C) universal life
D) all of the above
Q:
Which of the following is generally not a motive for firms to expand internationally?
a. Desire to achieve geographic diversification
b. Desire to accelerate growth
c. Desire to consolidate industries
d. Desire to avoid entry barriers
e. Desire to enter countries with less favorable tax rates
Q:
________ is an insurance product that will help if you live longer than you expect. For an initial fixed sum or stream of payments, the insurance company agrees to pay you a fixed amount for as long as you live.
A) Life insurance proper
B) Disability insurance
C) An annuity
D) Health insurance
Q:
Which of the following is true about segmented capital markets?
a. Exhibit different bond and equity prices in different geographic areas for identical assets in terms of risk and maturity.
b. Exhibit the same bond and equity prices in different geographic areas for identical assets in terms of risk and maturity.
c. Exhibit different bond and equity prices in the same geographic areas for identical assets in terms of risk and maturity.
d. Exhibit different bond prices but the same equity prices in different geographic areas for identical assets in terms of risk and maturity.
e. None of the above
Q:
A basic product of life insurance companies is ________.
A) disability insurance
B) annuities
C) health insurance
D) all of the above
Q:
Which of the following factors contribute to the integration of the global capital markets?
a. The reduction in trade barriers
b. The removal of capital controls
c. The harmonization of tax laws
d. Floating exchange rates
e. All of the above
Q:
All insurance is subject to several basic principles, including all of the following except that
A) the insured must provide full and accurate information to the insurance company.
B) the insured is to profit as a result of insurance coverage.
C) the loss must be quantifiable.
D) there must be a relationship between the insured and the beneficiary.
Q:
Due to absence of historical data in many emerging economies, the equity risk premium often is estimated using the prospective method implied in the constant growth valuation model. True or False
Q:
Which of the following pensions does not promise employees a specific retirement benefit?
A) defined-benefit plan
B) defined-contribution plan
C) overfunded plan
D) underfunded plan
Q:
An analyst can determine if a countrys equity market is likely to be segmented from the global equity market if the derived by regressing returns in the foreign market with returns on the global equity market is significantly different from one. True or False
Q:
Private pension plan assets are invested mainly in ________.
A) government securities
B) corporate bonds
C) stock
D) certificates of deposit
Q:
If individual countrys capital markets are segmented, the global capital asset pricing model must not be adjusted to reflect the tendency of investors in individual countries to hold local country rather than globally diversified equity portfolios. True or False
Q:
Keogh plans and IRAs are
A) individual pension plans.
B) government pension plans.
C) corporate pension plans.
D) public pension plans.
Q:
In globally integrated markets, it makes little difference whether the is calculated by regressing the target firms (or a similar firms) historical returns against the returns for a broadly defined global index, U.S. equity market index, or a broadly defined equity index in the targets country. True or False
Q:
Fraudulent practices and other abuses of private pension funds led Congress to enact the ________.
A) Federal Deposit Insurance Corporation Act
B) Employee Retirement Income Security Act
C) Federal Reserve Act
D) Social Security Act
Q:
If cash flows are in terms of local currency and the U.S. Treasury bond rate is used to estimate the risk free rate, the analyst should add the expected inflation rate in the local country relative to that in the U.S. to convert the U.S. Treasury bond rate to a local country nominal rate. True or False
Q:
Privatization of Social Security
A) would transform the program from an unfunded pay-as-you-go system to a fully funded pension plan.
B) would mean that workers' current contributions to Social Security would no longer be available to pay benefits to current retirees.
C) receives less public support when the stock market declines.
D) all of the above
E) none of the above
Q:
Whenever the target firms projected cash flows are in local currency, the risk free rate is the local countrys government bond rate. True or False