Module 39.2: Foreign Equities and Equity Risk

Question 1

What are four obstacles to firect foreign investing?

Answer 1

1) the investment and return are denominated in foreign currency
2) the foreign stock exchange may be illiquid
3) the reporting requirements of foreign stock exchanges may be less strict
4) Investors must be familiar with the regulations and procedures of each market in which the invest.

Question 2

What is a depsository receipt?

Answer 2

represents ownership in a foreign firm and are traded in the markets of other countries in local market currencies.

Question 3

What is a global depository receipt?

Answer 3

are issued outside the US and the issuer’s home country.

Question 4

What is an american dopository receipt?

Answer 4

denominated in US dollars and trade in the US. based on american dopsoitory share which tades in the firms domestic market.

Question 5

What is the book value or equity compared to the market value of equity?

Answer 5

book value - value of a firms assets minus liabilities

market value - total value of a firm’s outstanding equity shares based on market prices and reflects expectations.

Question 6

what is the calcualtion for accounting return on equity, or ROE?

Answer 6

ROE = NI / average book value

or

ROE = NI / Book value t -1

Question 7

is positive accounting ROE always a positive for a firm?

Answer 7

no, if book value of equity is declining faster than NI then that’s a red flag.

Question 8

what is the price to book ratio?

Answer 8

market value of a firm divided by the book value of its equity. the more optimistic investors are, the higher this ratio.

Question 9

how does a decrease in share price effect the expected reutnr on shares?

Answer 9

a decrease in shaer price will increase the expected return on the sahres and vice versa.