Multiple Choice
Which type of investment fund is generally considered the most attractive from a return perspective, assuming higher risk is acceptable?
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7. Receivables and Investments
Introduction to Investments in Securities
Multiple Choice
Which financial activity helps a company based in another country raise capital in the domestic market?
A
Issuing American Depositary Receipts (ADRs)
B
Recording depreciation expense
C
Paying dividends to shareholders
D
Preparing a cash flow statement
Verified step by step guidance1
Understand the concept of American Depositary Receipts (ADRs): ADRs are financial instruments that allow companies based in another country to raise capital in the domestic market by issuing shares that are traded on U.S. stock exchanges.
Analyze the purpose of ADRs: ADRs enable foreign companies to access U.S. investors and raise funds without directly listing their shares on U.S. exchanges. This is a key financial activity for raising capital in the domestic market.
Evaluate the other options: Recording depreciation expense is an accounting activity related to asset valuation, not capital raising. Paying dividends to shareholders is a distribution of profits, not a method of raising capital. Preparing a cash flow statement is a reporting activity, not a financial activity for raising capital.
Identify the correct answer: Issuing ADRs is the financial activity that helps a company based in another country raise capital in the domestic market.
Conclude: The correct answer is 'Issuing American Depositary Receipts (ADRs)' because it directly relates to raising capital in the domestic market for foreign companies.
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