Los 42.d Flashcards
(12 cards)
What are integrated markets?
Markets where capital flows freely across borders, facilitated by advancements in communication and technology, though some barriers still exist.
Why do some countries restrict foreign ownership of domestic stocks?
Primarily to prevent foreign control of domestic companies and reduce volatility of capital flows.
What are the benefits of reducing restrictions on foreign capital flows?
Improved equity market performance and increased access to foreign capital for companies.
Why do companies list their stocks on foreign exchanges?
Increased publicity for products, improved liquidity of shares, and enhanced transparency due to stricter disclosure requirements.
What is direct investment and what is some barriers to it?
Buying a foreign firm’s securities in foreign markets.
Barriers:
The investment and return are denominated in a foreign currency.
The foreign stock exchange may be illiquid.
The reporting requirements of foreign stock exchanges may be less strict, impeding analysis.
Investors must be familiar with the regulations and procedures of each market in which they invest
What are some ways to invest in foreign companies besides direct investment?
Global Depository Receipts (GDRs),
American Depository Receipts (ADRs),
Global Registered Shares (GRSs), and
Baskets of Listed Depository Receipts (BLDRs).
What are depository receipts (DRs)?
Receipts representing ownership in a foreign firm, traded in other countries’ markets in local currencies. A bank acts as custodian, managing dividends and other events.
What is the difference between sponsored and unsponsored DRs?
Sponsored: Firm is involved, investor has voting rights, greater disclosure. Unsponsored: Depository bank retains voting rights.
What are GDRs and where are they traded?
Issued outside the US and issuer’s home country, traded mainly on London and Luxembourg exchanges, often in USD, and offer greater investment opportunities due to fewer capital flow restrictions.
What are ADRs?
US dollar-denominated receipts traded in the US, based on American Depository Shares (ADS) traded in the firm’s domestic market. Some allow US capital raising or acquisitions. Most require SEC registration.
What is a GRS
A common share that is traded on different stock exchanges around the world in different currencies. Currency conversions are not needed to purchase or sell them, because identical shares are quoted and traded in different currencies.
