Question 1

The Euroequity market reflects equity issues by a foreign firm tapping a larger investor base than the firm's home equity market.

Accepted Answer

The Euroequity market allows foreign firms to raise equity from a larger investor base than their home equity market, making it an attractive option for these companies.

Question 2

In emerging countries where financial statements may be haphazard and gaining access to the information necessary to adequately assess risk is limited, it may be impossible to perform an adequate due diligence. Under these circumstances, acquirers may protect themselves by including a put option in the agreement of purchase and sale. Such an option would enable the buyer to require the seller to repurchase shares from the buyer at a predetermined price under certain circumstances.

Accepted Answer

Including a put option in the agreement of purchase and sale can be a way for acquirers to protect themselves in situations where due diligence is difficult or impossible in emerging countries. This option would allow the buyer to require the seller to repurchase shares under certain circumstances.

Question 3

The decision to buy political risk insurance depends on the size of the investment and the perceived level of political and economic risk.

Accepted Answer

This statement is true. The decision to purchase political risk insurance usually depends on the size of the investment and the level of perceived political and economic risk. If the investment is significant and the risk is deemed high, then acquiring political risk insurance may be a wise decision to mitigate potential losses or damages.

Question 4

Despite accounting practices varying widely from country to country, the seller should not be required to confirm that their financial statements have been prepared in accordance with generally accepted accounting principles if to do so would endanger the deal.

Accepted Answer

Financial statements prepared in accordance with generally accepted accounting principles (GAAP) are crucial for ensuring transparency, reliability, and comparability of financial information, which is essential for the trust and integrity of financial transactions, regardless of the potential impact on a deal.

Question 5

If the acquisition is structured as an asset purchase because the target is only a division of a foreign company or because the seller agrees to sell assets, the U.S. buyer of the assets must decide whether to acquire them directly or to use a new or existing foreign company to do so. The choice will affect future U.S. and non-U.S. tax consequences.

Accepted Answer

If the acquisition is structured as an asset purchase, it is important for the U.S. buyer to decide whether to acquire the assets directly or through a foreign company, as both options have different tax consequences.

Question 6

As in the U.S., any representations and warranties in an acquisition agreement are intended to cause the seller to disclose significant information. However, because of local custom, they are often more extensive in foreign countries than in the U.S.

Accepted Answer

The answer of As in the U.S., any representations and...

Question 7

Payment in transactions involving non-U.S. firms is most likely to be cash.

Accepted Answer

Cash is the most convenient and widely accepted form of payment in international transactions, especially when dealing with non-U.S. firms.

Question 8

Mergers are legal in all countries.

Accepted Answer

Mergers are subject to the regulatory and antitrust laws in each country, and therefore may not be legal in some cases.

Question 9

Bonds of a non-U.S. issuer registered with the SEC for sale in the U.S. public bond markets are called "Yankee" bonds.

Accepted Answer

Yankee bonds are indeed bonds issued by non-U.S. entities but registered with the SEC for sale in the U.S. public bond markets. They are named after the colloquial term for an American citizen, reflecting the fact that they are issued by foreign entities but marketed to U.S. investors.

Question 10

It is easy to differentiate between political and economic risks, since they are generally unrelated.

Accepted Answer

Political and economic risks are often intertwined and can have a significant impact on each other. For example, changes in government policy can lead to economic instability or affect the investment climate, and economic problems can lead to political unrest. Therefore, it is important to consider both political and economic risks when assessing potential risks in a particular country or region.

Question 11

Employees receive far greater legal protection in many developed foreign countries than they do in the U.S.

Accepted Answer

Many developed countries have stronger labor laws and regulations in place to protect employees, including more generous vacation time, paid leave, healthcare benefits, and job security protections. In contrast, the U.S. has relatively weak labor laws and anti-union policies, making it easier for employers to terminate employees without cause and to avoid offering basic benefits and protections.

Question 12

In choosing how to manage an acquisition in a new country, a manager with an in-depth knowledge of the acquirer's priorities, decision-making processes, and operations is appropriate, especially when the acquirer expects to make very large new investments.

Accepted Answer

A manager with in-depth knowledge of the acquirer's priorities, decision-making processes, and operations will have a better understanding of how to integrate the new acquisition and make informed decisions about future investments. This is especially important if the acquirer expects to make significant new investments in the new country.

Question 13

Product liability claims are generally more frequent and judgments are larger outside the U.S.

Accepted Answer

Product liability claims are generally more frequent in the U.S., and the judgments or settlements can also be larger compared to other countries. This is due to the U.S.'s legal system, which is more favorable to plaintiffs in such cases.

Question 14

Unanticipated changes in exchange rates rarely influence the competitiveness of products produced in the local market for export to the global marketplace.

Accepted Answer

Unanticipated changes in exchange rates can have a significant impact on the competitiveness of products produced in the local market for export. If the value of the local currency appreciates, the cost of exporting products will increase, making them less competitive in the global market. Conversely, if the value of the local currency depreciates, exports become cheaper and more competitive in the global market. Therefore, changes in exchange rates can have a direct impact on a country's exports and overall economic competitiveness.

Question 15

A sometimes overlooked challenge is the failure of the legal system in an emerging country to honor contracts.

Accepted Answer

This is true. Without a functional legal system that can effectively enforce contracts, it becomes difficult for businesses and investors to operate and for economies to grow.

Question 16

The American Depository Receipt (ADR) market evolved as a means of enabling foreign firms to raise funds in the U.S. equity markets.

Accepted Answer

The ADR market was developed to allow foreign companies to trade their shares in the U.S. markets without needing to comply with all the regulatory requirements of a U.S.-listed IPO, which can be costly and time-consuming. This provides foreign firms with access to a wider pool of investors and allows them to raise funds more easily.

Question 17

Language barriers, different customs, working conditions, work ethics, and legal structures create a new set of challenges in integrating cross-border transactions.

Accepted Answer

Cross-border transactions involve dealing with different cultures, legal frameworks, and work environments, which can make integration challenging. Language and communication barriers can also create additional difficulties. Therefore, it is true that these factors can create a new set of challenges in integrating cross-border transactions.

Question 18

International transactions tend to be highly challenging, as they typically involve multiple tax and legal jurisdictions.

Accepted Answer

International transactions often involve navigating different tax laws, regulations, and cultural differences across jurisdictions, making them complex and difficult to manage.

Question 19

In cross-border M&As, acquirer shares often are less attractive to potential targets because of the absence of a liquid market for resale or because the acquirer is not widely recognized by the target firm's shareholders.

Accepted Answer

This statement is true. The absence of a liquid market and lack of recognition by the target firm's shareholders are common reasons for acquirer shares being less attractive in cross-border M&As.

Question 20

With tax avoidance and fraud common in many countries, the buyer may find that some assets will transfer encumbered by tax liens.

Accepted Answer

Tax avoidance and fraud can lead to tax liens being placed on assets, which can encumber their transfer to a new owner.

Quiz 18: Cross-Border Mergers and Acquisitions: