International financial markets and instruments: Euro currency, GDRs, ADRs - One Line Questions

1. What is a Eurobond? — A bond issued in a country different from the issuer's home country and often denominated in a currency other than the issuer's home currency.
2. What is a Global Depositary Receipt (GDR)? — A certificate representing shares of a non-US company traded on stock exchanges outside the US.
3. The term 'Eurodollar' refers to: — A dollar deposited in a bank outside the United States.
4. A company wants to raise capital by selling its shares to investors in the United States, but its shares are listed on the Frankfurt Stock Exchange. It would most likely issue: — An ADR
5. Which of the following is a depositary receipt that allows investors in Europe to purchase shares of a US-based company listed on the NYSE? — An ADR
6. A US-based investor wants to buy shares of a Japanese company listed on the Tokyo Stock Exchange. The most convenient way to do this on a US exchange would be to purchase: — An ADR
7. Which of the following best describes the Eurocurrency market? — A market where currencies are deposited and lent outside their country of origin.
8. Which of the following is a disadvantage for a company issuing ADRs? — Compliance costs and regulatory requirements.
9. A company wants its shares to be easily tradable by investors in Europe without listing on every European exchange. It might consider issuing: — GDRs
10. What is a key difference between ADRs and GDRs? — ADRs are traded only in the US, while GDRs can be traded in multiple countries.
11. The primary purpose of establishing Eurocurrency markets was to: — Circumvent capital controls and regulations.
12. A Level III ADR is typically issued for: — Companies seeking to raise capital in the US market.
13. What is the primary risk for a lender in the Eurocurrency market? — Credit risk of the borrower.
14. The LIBOR (London Interbank Offered Rate) was historically a benchmark rate for: — Eurocurrency loans.
15. Which instrument allows investors to trade shares of a company listed on the Tokyo Stock Exchange on the New York Stock Exchange? — ADR
16. Which financial instrument allows investors to gain exposure to foreign equities without directly purchasing them on foreign exchanges, and is denominated in US dollars? — ADR
17. Which of the following instruments is used to facilitate cross-border investment by allowing investors to hold securities from another country in their local market? — Depositary Receipt (ADR/GDR)
18. What is the main risk associated with Eurocurrency deposits for depositors? — Lack of deposit insurance provided by a home country.
19. GDRs are primarily traded on which types of exchanges? — Stock exchanges outside the company's home country, often in major financial centers like London or Luxembourg.
20. Companies typically use Eurocurrency loans for: — Meeting short-term working capital needs internationally.
21. Which of the following is a key feature of Eurocurrency lending? — Loans are typically syndicated among multiple banks.
22. ADRs (American Depositary Receipts) are specifically designed for: — US investors wanting to invest in foreign companies.
23. A company based in India issues shares that are traded on the London Stock Exchange through a depositary receipt mechanism. This depositary receipt is most likely a: — GDR
24. The underlying assets for both GDRs and ADRs are typically: — Shares of stock.
25. Eurocurrency markets are characterized by: — Lower transaction costs and greater flexibility.
26. Which of the following is a major advantage of the Eurocurrency market for borrowers? — Lower regulatory oversight and potentially lower borrowing costs.
27. The absence of significant regulatory oversight in Eurocurrency markets can lead to: — Higher liquidity and potentially lower costs.
28. The development of Eurocurrency markets was largely spurred by: — The desire to avoid capital controls and take advantage of interest rate differentials.
29. The primary reason for the growth of international financial markets like the Eurocurrency market is: — Globalization of trade and finance, and regulatory arbitrage.
30. What is the primary characteristic of a Eurocurrency deposit? — It is held in a bank outside the currency's home country.
31. Which of the following is NOT a characteristic of the Eurocurrency market? — It is primarily used for domestic lending within a specific European nation.
32. What is the primary benefit of Eurocurrency markets for international trade? — It provides a mechanism for financing trade in various currencies outside national controls.
33. Which type of ADR issuance involves the company actively raising capital by issuing new shares in the US market? — Level III
34. A Level I ADR is traded: — Over-the-counter (OTC) and does not require SEC registration.
35. Which of the following is a common denomination currency for Eurocurrency deposits and loans? — Major world currencies like USD, EUR, GBP, JPY.
36. Eurocurrency markets are significant because they: — Provide a competitive source of funding for international trade and investment.
37. GDRs allow companies to: — Raise capital from a global investor base.
38. The Eurocurrency market facilitates international capital flows by: — Allowing banks to accept deposits and make loans in currencies other than their home currency, bypassing national regulations.
39. What does the 'Depository Bank' do in the context of ADRs/GDRs? — Holds the underlying foreign shares and issues the corresponding ADRs/GDRs.
40. Eurocurrency loans are typically: — Short-term and variable-rate.
41. A 'bearer' instrument in the context of Eurobonds means: — Interest and principal are paid to whoever physically holds the bond certificate.
42. The 'unsponsored' ADR is created when: — A depositary bank creates ADRs without the company's direct involvement, typically in response to market demand.
43. Which entity typically issues Depositary Receipts (DRs)? — A depositary bank.
44. What is the relationship between a Level II ADR and the underlying shares? — The Level II ADR is traded on a US stock exchange and the issuer must file with the SEC.
45. The 'level' of an ADR refers to: — The extent of SEC registration and reporting required.
46. What is a key advantage of Eurobonds for issuers? — They avoid the complex registration requirements of domestic bond issues.
47. The main reason a company might choose to issue GDRs instead of listing directly on foreign exchanges is: — To simplify the process of accessing international capital markets and a broader investor base.
48. What is the primary function of the Eurocurrency market in international finance? — To provide a platform for international borrowing and lending outside national regulations.
49. What is the main function of a custodian bank in relation to GDRs? — To hold the underlying shares and manage corporate actions.
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