Equity Investments - Equity Investments Section 2
6. The voting rights to the shares in the trust of an unsponsored depository receipt belong to:
- Option : B
- Explanation : The depository bank purchases the shares of a company, places them in a trust and then sells shares in the trust. Hence, voting rights belong to the depository bank.
7. A basket of listed depository receipts:
- Option : A
- Explanation : A basket of listed depository receipts tracks an index but trades like an individual share on an exchange.
8. Which of the following factors least likely impact the returns from a depository receipt?
- Option : C
- Explanation : The price of each depository receipt (and returns) will be affected by factors that affect the price of the underlying shares, such as company fundamentals, market conditions, analysts’ recommendations, and exchange rate movements. The ratio of depository receipts to underlying shares does not impact return.
9. Martha comes across the following two statements while checking her students’ examination papers.
Statement I: The only disadvantage of a global depository receipt is that it is subject to capital flow restrictions.
Statement II: Sponsored depository receipts provide the investors with voting rights while unsponsored depository receipts do not.
Which of the following statements is most accurate?
- Option : B
- Explanation : Global depository receipts are not subject to capital flow restrictions. Therefore statement I is incorrect. Statement II is correct.
10. Which of the following statements about depository receipts (DRs) is least accurate?
- Option : A
- Explanation : Investors of unsponsored DRs do not have voting rights, the depository bank retains the voting rights.
