Equity old boston paper

CFA Level II
#1

The Malaysia Fund is a closed end country fund consisting of stocks trading on the Kuala Lumpur Stock Exchange (KLSE). One of the largest companies on the KLSE, OYL Industries Bhd, Malaysia’s largest computer products company, recently announced plans to issue American Depositary Receipts (ADRs) on the NYSE. Currently, its common shares can only be purchased on the KLSE in the local currency, the Malaysian Ringgit (MYR). Malaysia currently has severe restrictions on the ability of foreigners to invest directly in equities trading on the KLSE. The Malaysia Fund trades on the NYSE at $130 per share, representing a premium of 30% over the Fund’s NAV of $100 per share. The likely impact on the KLSE if investors and analysts in the U.S. suddenly became bearish on Malaysia (before investment restrictions were lifted) and sold off shares of the Malaysia fund is that: A. it would be difficult to predict the impact on the Malaysian stock market. B. the prices of Malaysian equities would plummet, because of the illiquidity of the shares on the KLSE. C. the net asset value of the Fund would suddenly decrease because the Fund’s portfolio managers would have to sell off shares of Malaysian companies to accomplish redemptions. D. there would be no direct impact on the shares of Malaysian companies, as no underlying stocks would need to be sold by the Malaysia Fund’s portfolio managers to accomplish redemptions

#2

.

#3

A

#4

hmm… d?

#5

it’s either A or B can’t be C or D cause there are no redemptions being a closed end fund the fund will still hold the stocks no matter what the only thing that is important is correlation between Us outlook and the foreign market

#6

ummmm… B?

#7

i’ll toss one out for C?

#8

D.

#9

D makes sense to me too if they would not have the redemption thing at the end closed end funds make no redemptions right?

#10

answer is D… the key is “investment restricted not lifted”… one would expect the shares on NYSE will be impacted… but since foreigners can not access KLSE, it should not although one could argue that that investors in KLSE should sell it too… but i guess B is not right because it talks about illiquity

#11

whoops- florin i think is right about the redemption stuff… i retract my C but then what am i left with, maybe A? i guess B maybe if Malaysia took the US as some signal and started selling off it’d be maybe exaggerated since there’s such limitations on investing? but seems drastic. I’ll just wait and see what’s right- big -1 for me here!