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Tutorial 21 Solution - BUS3026W Finance II 2009 Tutorial 21 Suggested Solutions[No Hand-In Required QUESTION 1 A MNC that has a product market

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1 BUS3026W Finance II 2009 - Tutorial 21 Suggested Solutions [No Hand-In Required] QUESTION 1 A MNC that has a product market presence or manufacturing facilities in several countries may cross-list its shares on the exchanges of these same countries because there is typically investor demand for the shares of companies that are known within a country. Additionally, a company may cross-list its shares on foreign exchanges to broaden its investor base and therefore to increase the demand for its stock. An increase in demand will generally increase the stock price and improve its market liquidity. A broader investor base may also mitigate the possibility of a hostile takeover. Additional, cross-listing a company’s shares establishes name recognition and thus facilitates sourcing new equity capital in these foreign capital markets. [4] QUESTION 2 While national security markets have become more integrated in recent years, there is still a tremendous amount of segmentation that brings about the benefit to be derived from international diversification of financial assets. Monetary and fiscal policies differ among countries because of different economic circumstances. The economic policies of a country directly affect the securities traded in the country, and they will behave differently than securities traded in another country with other economic policies being implemented. Hence, it is not surprising that domestic factors are found to be more important than international factors in affecting security returns. Similarly, industrial activity within a country is also affected by the economic policies of the country; thus firms in the same industry group, but from different countries, will not necessarily behave the same in all countries, nor should we expect the securities issued by these firms to behave alike. [4]
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This note was uploaded on 06/01/2011 for the course FIN 3026W taught by Professor Drtoerien during the Summer '09 term at University of Cape Town.

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Tutorial 21 Solution - BUS3026W Finance II 2009 Tutorial 21 Suggested Solutions[No Hand-In Required QUESTION 1 A MNC that has a product market

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