Walkure A.G., a multinational corporation from Country A, announced the relocation of its manufacturing plants from Country B to Country C. The news about the relocation was never reported in the media. The move is expected to create positive synergies, as most of the company's other manufacturing operations are based in Country C. The relocation is also expected to lead to tax benefits. The company's shares are traded in three stock exchanges in Country A, Country B, and Country C. Share prices in the three stock exchanges responded to the relocation in three different ways: Country A: The share price increased drastically after the announcement.Country B: The share price decreased drastically after the announcement.Country C: The share price increased marginally after the announcement.Based solely on the information given, which of the following statements is least likely true of the stock exchanges? The exchange in Country A is most efficient, as the market reacted accurately to the announcement. The exchange in Country B is inefficient, as the market reacted irrationally to the announcement. The exchange in Country C is most efficient, as the market reacted conservatively to the announcement. It cannot be determined which market reacted most efficiently without knowing the extent of the synergies and tax benefits. All of the above answers are correct.

Market is considered as efficient only if: Intrinsic Value = Stock price Stock prices fully relects…

Answered: Walkure A.G., a multinational…

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter25: Taxation Of International Transact Ions

Section: Chapter Questions

Problem 25P

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Walkure A.G., a multinational corporation from Country A, announced the relocation of its manufacturing plants from Country B to Country C. The news about the relocation was never reported in the media. The move is expected to create positive synergies, as most of the company's other manufacturing operations are based in Country C. The relocation is also expected to lead to tax benefits. The company's shares are traded in three stock exchanges in Country A, Country B, and Country C. Share prices in the three stock exchanges responded to the relocation in three different ways:

Country A: The share price increased drastically after the announcement.
Country B: The share price decreased drastically after the announcement.
Country C: The share price increased marginally after the announcement.

Based solely on the information given, which of the following statements is least likely true of the stock exchanges?

The exchange in Country A is most efficient, as the market reacted accurately to the announcement.
The exchange in Country B is inefficient, as the market reacted irrationally to the announcement.
The exchange in Country C is most efficient, as the market reacted conservatively to the announcement.
It cannot be determined which market reacted most efficiently without knowing the extent of the synergies and tax benefits.
All of the above answers are correct.

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

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