Question 1

Which of the following differentiates securities firms from investment banks?

Accepted Answer

A) Securities firms are concerned with the commercial side of the business while investment banks are concerned with the retail side of the business. 
B) Securities firms assist in trading of existing securities while investment banks specialize in underwriting new securities. 
C) Securities firms underwrite new issues of securities while investment banks provide brokerage services. 
D) Securities firms originate new issues of securities and investment banks underwrite the securities. 
E) Securities firms are concerned with private placements of securities whereas investment banks are concerned with publicly traded securities. 
A) Securities firms are concerned with the commercial side of the business while investment banks are concerned with the retail side of the business. 
B) Securities firms assist in trading of existing securities while investment banks specialize in underwriting new securities. 
C) Securities firms underwrite new issues of securities while investment banks provide brokerage services. 
D) Securities firms originate new issues of securities and investment banks underwrite the securities. 
E) Securities firms are concerned with private placements of securities whereas investment banks are concerned with publicly traded securities.

Question 2

What is the profit to the investment banker it sells 4.5 million shares for $29 per share?

Accepted Answer

A) Profit of $1,687,500. 
B) Loss of $2,487,500. 
C) Profit of $1,875,000. 
D) Loss of $3,125,000. 
E) Profit of $3,125,500. [Refer to: 4-122] 
A) Profit of $1,687,500. 
B) Loss of $2,487,500. 
C) Profit of $1,875,000. 
D) Loss of $3,125,000. 
E) Profit of $3,125,500. [Refer to: 4-122]

Question 3

Asset managers sometimes prefer dark pools to exchanges because orders remain hidden until they are executed, which can help investors get a better price on large trades.

Accepted Answer

A) True 
 B)False

Question 4

What is the profit to the investment banker if it is able to sell 4.5 million shares for $31 per share?

Accepted Answer

A) Profit of $1,875,000. 
B) Loss of $1,275,000. 
C) Profit of $1,687,500. 
D) Loss of $3,125,000. 
E) Profit of $3,125,500. [Refer to: 4-122] 
A) Profit of $1,875,000. 
B) Loss of $1,275,000. 
C) Profit of $1,687,500. 
D) Loss of $3,125,000. 
E) Profit of $3,125,500. [Refer to: 4-122]

Question 5

What is the profit to the investment banker if it is able to sell 8 million shares for $10.50 per share?

Accepted Answer

A) Profit of $1,000,000. 
B) Loss of $7,500,000. 
C) Profit of $7,000,000. 
D) Loss of $7,000,000. 
E) Profit of $1,800,000. [Refer to: 4-112] 
A) Profit of $1,000,000. 
B) Loss of $7,500,000. 
C) Profit of $7,000,000. 
D) Loss of $7,000,000. 
E) Profit of $1,800,000. [Refer to: 4-112]

Question 6

The value of assets is the traditional measure of size in the securities brokerage and investment banking industry.

Accepted Answer

A) True 
 B)False

Question 7

The dominant form of institutional venture capital firms operate as a

Accepted Answer

A) Corporation. 
B) Subsidiary of a financial company. 
C) Bank holding company. 
D) Limited partnership. 
E) General partnership. 
A) Corporation. 
B) Subsidiary of a financial company. 
C) Bank holding company. 
D) Limited partnership. 
E) General partnership.

Question 8

Principal transactions allow the market maker to always make a profit regardless of whether the market price for a specific stock is rising or falling.

Accepted Answer

A) True 
 B)False

Question 9

As of 2015, 45 percent of all stock trades in the U.S.occurred through dark pools.

Accepted Answer

A) True 
 B)False

Question 10

Pure arbitrage trading involves

Accepted Answer

A) buying blocks of securities in anticipation of some information release. 
B) purchase of stock in a company being acquired and the sale of stock in the acquiring company. 
C) exploitation of a difference between a company's current value and its estimated liquidation value. 
D) purchasing an asset in one market at one price and selling it immediately in another market at a higher price. 
E) simultaneous purchase and sale of similar shares in a single market. 
A) buying blocks of securities in anticipation of some information release. 
B) purchase of stock in a company being acquired and the sale of stock in the acquiring company. 
C) exploitation of a difference between a company's current value and its estimated liquidation value. 
D) purchasing an asset in one market at one price and selling it immediately in another market at a higher price. 
E) simultaneous purchase and sale of similar shares in a single market.

Question 11

One of the primary reasons that investment banks were allowed to convert to bank holding companies during the recent financial crisis was recognition that

Accepted Answer

A) their operating activities were too risky and they needed the cushion of bank deposits to alleviate funding risks. 
B) the industry had acquired too much capital during the previous decade. 
C) bank holding companies needed the ability to underwrite new issues of corporate securities. 
D) it was the only way an investment bank could qualify for federal bailout funds. 
E) the Federal Reserve was unable to purchase troubled assets from investment banks, but they could from bank holding companies.
An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc.on a firm commitment basis.The investment banker pays $10.50 per share to TWResearch, Inc.for the 10 million shares of stock.It then sells those shares to the public for $11.20 per share. 
A) their operating activities were too risky and they needed the cushion of bank deposits to alleviate funding risks. 
B) the industry had acquired too much capital during the previous decade. 
C) bank holding companies needed the ability to underwrite new issues of corporate securities. 
D) it was the only way an investment bank could qualify for federal bailout funds. 
E) the Federal Reserve was unable to purchase troubled assets from investment banks, but they could from bank holding companies.
An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc.on a firm commitment basis.The investment banker pays $10.50 per share to TWResearch, Inc.for the 10 million shares of stock.It then sells those shares to the public for $11.20 per share.

Question 12

Securities firms and investment banks are more involved internationally than other member of the financial services industry.

Accepted Answer

A) True 
 B)False

Question 13

What is the profit (loss) to the investment banker?

Accepted Answer

A) Profit of $1,000,000. 
B) Profit of $2,000,000. 
C) Profit of $7,000,000. 
D) Loss of $7,500,000. 
E) Loss of $1,000,000. 
A) Profit of $1,000,000. 
B) Profit of $2,000,000. 
C) Profit of $7,000,000. 
D) Loss of $7,500,000. 
E) Loss of $1,000,000.

Question 14

Trades created by institutional orders that are carried out away from central exchanges are called dark pools.

Accepted Answer

A) True 
 B)False

Question 15

Soft dollars is a term often used in reference to the portion of a fee or commission that is allocated to

Accepted Answer

A) research and other advisory services. 
B) custody and escrow services. 
C) clearance and settlement services. 
D) banking services. 
E) back office services. 
A) research and other advisory services. 
B) custody and escrow services. 
C) clearance and settlement services. 
D) banking services. 
E) back office services.

Question 16

How much money does NetChoice, Inc.receive?

Accepted Answer

A) $139,500,500. 
B) $137,812,500. 
C) $155,000,000. 
D) $153,125,000. 
E) $105,000,000. [Refer to: 4-114] 
A) $139,500,500. 
B) $137,812,500. 
C) $155,000,000. 
D) $153,125,000. 
E) $105,000,000. [Refer to: 4-114]

Question 17

In market-making

Accepted Answer

A) principal transactions that are two-way transactions on behalf of customers, such as a dealer working for a fee or commission. 
B) principal transactions when market makers take long or short positions and seek profits on price movements. 
C) market makers take inventory positions to stabilize the market in the securities. 
D) principal transactions that are two-way transactions on behalf of customers, such as a dealer working for a fee or commission and principal transactions when market makers take long or short positions and seek profits on price movements. 
E) principal transactions that are two-way transactions on behalf of customers, such as a dealer working for a fee or commission and market makers take inventory positions to stabilize the market in the securities. 
A) principal transactions that are two-way transactions on behalf of customers, such as a dealer working for a fee or commission. 
B) principal transactions when market makers take long or short positions and seek profits on price movements. 
C) market makers take inventory positions to stabilize the market in the securities. 
D) principal transactions that are two-way transactions on behalf of customers, such as a dealer working for a fee or commission and principal transactions when market makers take long or short positions and seek profits on price movements. 
E) principal transactions that are two-way transactions on behalf of customers, such as a dealer working for a fee or commission and market makers take inventory positions to stabilize the market in the securities.

Question 18

What is the profit (loss) to the investment banker?

Accepted Answer

A) Profit of $7,500,000. 
B) Profit of $2,000,000. 
C) Profit of $7,000,000. 
D) Loss of $7,500,000. 
E) Loss of $2,000,000. [Refer to: 4-118] 
A) Profit of $7,500,000. 
B) Profit of $2,000,000. 
C) Profit of $7,000,000. 
D) Loss of $7,500,000. 
E) Loss of $2,000,000. [Refer to: 4-118]

Question 19

The primary advantage to the investor of a securities firm cash management account (CMA) over commercial bank deposit accounts is that

Accepted Answer

A) no FDIC insurance is required on CMAs. 
B) no regulatory oversight of CMAs. 
C) they make it easier to buy and sell securities using funds from the CMA. 
D) CMAs guarantee higher rates of return than money market deposit accounts. 
E) Regulation Q interest rate ceilings do not apply to CMAs. 
A) no FDIC insurance is required on CMAs. 
B) no regulatory oversight of CMAs. 
C) they make it easier to buy and sell securities using funds from the CMA. 
D) CMAs guarantee higher rates of return than money market deposit accounts. 
E) Regulation Q interest rate ceilings do not apply to CMAs.

Question 20

A best-efforts offering of a security is more risky for an investment bank than a firm commitment offering.

Accepted Answer

A) True 
 B)False

Exam 4: Financial Services: Securities Brokerage and Investment Banking

Which of the following differentiates securities firms from investment banks?

What is the profit to the investment banker it sells 4.5 million shares for $29 per share?

Asset managers sometimes prefer dark pools to exchanges because orders remain hidden until they are executed, which can help investors get a better price on large trades.

What is the profit to the investment banker if it is able to sell 4.5 million shares for $31 per share?

What is the profit to the investment banker if it is able to sell 8 million shares for $10.50 per share?

The value of assets is the traditional measure of size in the securities brokerage and investment banking industry.

The dominant form of institutional venture capital firms operate as a

Principal transactions allow the market maker to always make a profit regardless of whether the market price for a specific stock is rising or falling.

As of 2015, 45 percent of all stock trades in the U.S.occurred through dark pools.

Pure arbitrage trading involves

One of the primary reasons that investment banks were allowed to convert to bank holding companies during the recent financial crisis was recognition that

Securities firms and investment banks are more involved internationally than other member of the financial services industry.

What is the profit (loss) to the investment banker?

Trades created by institutional orders that are carried out away from central exchanges are called dark pools.

Soft dollars is a term often used in reference to the portion of a fee or commission that is allocated to

How much money does NetChoice, Inc.receive?

In market-making

What is the profit (loss) to the investment banker?

The primary advantage to the investor of a securities firm cash management account (CMA) over commercial bank deposit accounts is that

A best-efforts offering of a security is more risky for an investment bank than a firm commitment offering.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Fintech Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters