Exam 3: Financial Markets and the Investment Banking Process

When stock in a closely held corporation is offered to the public for the first time the transaction is called "going public" and the market for such stock is called the initial public offering,or IPO,market.

The market value of the Japanese stock markets exceeds the market value of the major exchanges in the United States.

A prospectus is a document describing a new security issue and the issuing company.

Informational efficiency generally exists when the financial markets have a large number of participants in search of the most profitable investments.

The trade-through rule states that

The cost of meeting SEC and possible additional state reporting requirements regarding disclosure of certain financial information about the firm,the danger of losing control,and the possibility of an inactive market or low stock price are all potential disadvantages of going public.

If you purchase commercial paper that matures in 180 days from the issuing firm this transaction will take place in ____ markets and ____ markets.

When a firm issues new equity,market pressure applies first to the new shares issued and then to existing shares.Subsequent to the new issue,the value of the new shares will rise to the equilibrium price of the old shares.

If an individual investor buys and sells existing stocks through a broker,these are primary market transactions.

The OTC market is a physical exchange,much like the New York Stock Exchange,where securities dealers provide trading in unlisted securities.

On average,stock markets in emerging economies have grown much more rapidly than stock markets in developed economies during the past decade.

The New York Stock Exchange is primarily

In general,when a firm decides to raise capital there are stage I and stage II decisions.Stage I decisions include the amount to be raised and the type of security to be issued.Once the type of security is chosen this is a decision that cannot be changed in stage II.

If you purchase stock from a firm conducting a seasoned equity offering,this transaction will take place in ____ markets and ____ markets.

Market efficiency refers only to the speed at which financial transactions occur.

A best efforts arrangement is an agreement for the sale of securities in which the investment bank guarantees the sale by purchasing the securities from the issuer,thus agreeing to bear any risks involved in the transaction.

Investment bankers are not really like commercial "bankers" in the sense of taking deposits and issuing loans;rather,they help firms issue securities in the secondary market and their activities are limited to raising new equity capital.

All financial markets are physical locations in which parties meet to exchange financial assets.

The percentage of flotation costs associated with a new equity issue is usually quite high for small issues as a consequence of certain fixed costs which must be incurred regardless of the issue size.

Financial markets are important because they