Question 1

Discount brokers

Accepted Answer

A) are securities firms focused on providing research support for customers. 
B) conduct trades for customers but do not offer investment advice. 
C) allow customers to receive investment advice at very low rates. 
D) effect trades for customers on- or offline while offering investment advice. 
E) are electronic trading securities firms that allow customers to trade without the use of a broker. 
A) are securities firms focused on providing research support for customers. 
B) conduct trades for customers but do not offer investment advice. 
C) allow customers to receive investment advice at very low rates. 
D) effect trades for customers on- or offline while offering investment advice. 
E) are electronic trading securities firms that allow customers to trade without the use of a broker.

Question 2

Which of the following is true?

Accepted Answer

A) Investment bankers earn fees based on the success of their placements when they underwrite using a best-efforts basis. 
B) Investment bankers earn fees based on the success of their placement when they underwrite using firm-commitment basis. 
C) With best-efforts underwriting, investment bankers act as principals because they purchase securities from the issuer and sell them at a higher price. 
D) An investment banker is acting as an agent when conducting a firm-commitment offering of securities. 
E) Investment bankers earn fees based on the success of their placement when they underwrite using firm-commitment basis; and with best-efforts underwriting, investment bankers act as principals because they purchase securities from the issuer and sell them at a higher price. 
A) Investment bankers earn fees based on the success of their placements when they underwrite using a best-efforts basis. 
B) Investment bankers earn fees based on the success of their placement when they underwrite using firm-commitment basis. 
C) With best-efforts underwriting, investment bankers act as principals because they purchase securities from the issuer and sell them at a higher price. 
D) An investment banker is acting as an agent when conducting a firm-commitment offering of securities. 
E) Investment bankers earn fees based on the success of their placement when they underwrite using firm-commitment basis; and with best-efforts underwriting, investment bankers act as principals because they purchase securities from the issuer and sell them at a higher price.

Question 3

An attempt by a market maker to earn a profit on the price movements of securities by taking inventory positions for its own account is called

Accepted Answer

A) risk arbitrage. 
B) an agency transaction. 
C) best efforts underwriting. 
D) pure arbitrage. 
E) a principal transaction. 
A) risk arbitrage. 
B) an agency transaction. 
C) best efforts underwriting. 
D) pure arbitrage. 
E) a principal transaction.

Question 4

Participation in the activities relating to the underwriting and distribution of new issues of debt and equity by a securities firm involves the function of

Accepted Answer

A) investing. 
B) merger and acquisitions. 
C) market making. 
D) investment banking. 
E) trading. 
A) investing. 
B) merger and acquisitions. 
C) market making. 
D) investment banking. 
E) trading.

Question 5

Cash management accounts were an early attempt by commercial banks to provide investment banking services to individuals.

Accepted Answer

A) True 
 B)False

Question 6

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. If the investment bank can sell the shares for $9.75 per share, how much money does TWResearch receive?

Accepted Answer

A) $105,000,000. 
B) $150,000,000. 
C) $112,000,000. 
D) $125,000,000. 
E) $110,000,000. 
A) $105,000,000. 
B) $150,000,000. 
C) $112,000,000. 
D) $125,000,000. 
E) $110,000,000.

Question 7

Securities underwriting and trading is an activity that requires a considerable investment in long-term assets and relatively small investments in short-term assets.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following 2 U.S. firms survived as investment banks following the most recent financial crisis?

Accepted Answer

A) Morgan Stanley and Bear Stearns. 
B) Goldman Sachs and Merrill Lynch. 
C) Lehman Brothers and Morgan Stanley. 
D) Merrill Lynch and Lehman Brothers. 
E) None of these. 
A) Morgan Stanley and Bear Stearns. 
B) Goldman Sachs and Merrill Lynch. 
C) Lehman Brothers and Morgan Stanley. 
D) Merrill Lynch and Lehman Brothers. 
E) None of these.

Question 9

An investment banker agrees to underwrite an issue of 10 million shares of stock for Rochester Industries on a best-efforts basis. The investment banker is able to sell 8 million shares for $10.50 per share, and it charges Rochester Industries $0.225 per share sold. If the investment bank were able to sell all 10 million shares for $12.75 per share, how much money does Rochester Industries receive?

Accepted Answer

A) $127,500,000. 
B) $125,250,000. 
C) $105,675,000. 
D) $102,000,000. 
E) $99,000,000. 
A) $127,500,000. 
B) $125,250,000. 
C) $105,675,000. 
D) $102,000,000. 
E) $99,000,000.

Question 10

Market makers in a stock are obligated to buy shares from sellers even when the market for the stock is declining.

Accepted Answer

A) True 
 B)False

Question 11

As of 2012, equity capital in the securities industry measured over 12 percent.

Accepted Answer

A) True 
 B)False

Question 12

In order for an investment bank to perform a firm commitment offering of securities, they must maintain at least 20% equity on their balance sheet.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is most typical of broker-dealers?

Accepted Answer

A) They assist in underwriting of new securities. 
B) They assist in trading of existing securities. 
C) They assist in issuing new securities. 
D) They assist in underwriting and distribution of new securities. 
E) All of these. 
A) They assist in underwriting of new securities. 
B) They assist in trading of existing securities. 
C) They assist in issuing new securities. 
D) They assist in underwriting and distribution of new securities. 
E) All of these.

Question 14

In a public offering of a new security, an investment banker places a new issue of securities with a handful of private, usually large, investors.

Accepted Answer

A) True 
 B)False

Question 15

Program trading involves

Accepted Answer

A) online trading services provided to customers by electronic trading securities firms. 
B) computer-driven buying or selling of baskets of 15 or more stocks by institutional traders. 
C) purchase and sale of assets that are potentially but not necessarily equivalent. 
D) buying blocks of securities in anticipation of some information release. 
E) providing a platform for customers to trade without the use of a broker. 
A) online trading services provided to customers by electronic trading securities firms. 
B) computer-driven buying or selling of baskets of 15 or more stocks by institutional traders. 
C) purchase and sale of assets that are potentially but not necessarily equivalent. 
D) buying blocks of securities in anticipation of some information release. 
E) providing a platform for customers to trade without the use of a broker.

Question 16

Electronic brokerage allows an investor to have direct access to the trading floor.

Accepted Answer

A) True 
 B)False

Question 17

Integrated investment and brokerage firms

Accepted Answer

A) may specialize in providing service to both retail and corporate customers. 
B) usually serve only as discount brokers without offering investment advice. 
C) may specialize more in corporate finance with high activity in trading securities. 
D) All of these. 
E) may specialize in providing service to both retail and corporate customers, and may specialize more in corporate finance with high activity in trading securities. 
A) may specialize in providing service to both retail and corporate customers. 
B) usually serve only as discount brokers without offering investment advice. 
C) may specialize more in corporate finance with high activity in trading securities. 
D) All of these. 
E) may specialize in providing service to both retail and corporate customers, and may specialize more in corporate finance with high activity in trading securities.

Question 18

An angel venture capitalist is likely to be a wealthy individual that makes equity investments in unsuccessful, bankrupt firms.

Accepted Answer

A) True 
 B)False

Question 19

The U.S.A. Patriot Act requires financial services firms operating in the United States to

Accepted Answer

A) verify the identity of any person seeking to open an account. 
B) maintain records of the information used to verify a person's identity. 
C) determine whether a person opening an account is on a list of suspected terrorists. 
D) All of these. 
E) verify the identity of any person seeking to open an account, and determine whether a person opening an account is on a list of suspected terrorists. 
A) verify the identity of any person seeking to open an account. 
B) maintain records of the information used to verify a person's identity. 
C) determine whether a person opening an account is on a list of suspected terrorists. 
D) All of these. 
E) verify the identity of any person seeking to open an account, and determine whether a person opening an account is on a list of suspected terrorists.

Question 20

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a best-efforts basis. The investment banker is able to sell 4.5 million shares for $31.00 per share and it charges NetChoice, Inc. $0.375 per share sold. 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. 
A) $139,500,500. 
B) $137,812,500. 
C) $155,000,000. 
D) $153,125,000. 
E) $105,000,000.

Exam 4: Securities, Brokerage, and Investment Banking

Discount brokers

Which of the following is true?

An attempt by a market maker to earn a profit on the price movements of securities by taking inventory positions for its own account is called

Participation in the activities relating to the underwriting and distribution of new issues of debt and equity by a securities firm involves the function of

Cash management accounts were an early attempt by commercial banks to provide investment banking services to individuals.

Securities underwriting and trading is an activity that requires a considerable investment in long-term assets and relatively small investments in short-term assets.

Which of the following 2 U.S. firms survived as investment banks following the most recent financial crisis?

Market makers in a stock are obligated to buy shares from sellers even when the market for the stock is declining.

As of 2012, equity capital in the securities industry measured over 12 percent.

In order for an investment bank to perform a firm commitment offering of securities, they must maintain at least 20% equity on their balance sheet.

Which of the following is most typical of broker-dealers?

In a public offering of a new security, an investment banker places a new issue of securities with a handful of private, usually large, investors.

Program trading involves

Electronic brokerage allows an investor to have direct access to the trading floor.

Integrated investment and brokerage firms

An angel venture capitalist is likely to be a wealthy individual that makes equity investments in unsuccessful, bankrupt firms.

The U.S.A. Patriot Act requires financial services firms operating in the United States to

Why Are Financial Institutions Special

Deposit-Taking Institutions

Finance Companies

Mutual Funds, Hedge Funds, and Pension Funds

Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loans

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

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 Index

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