Question 1

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 2

Since the recent financial crisis,the securities and investment banking industry has been expanding and adding new lines of business.

Accepted Answer

A) True 
 B)False

Question 3

The largest category of assets for securities firms as of 2015 was

Accepted Answer

A) receivables from other broker-dealers. 
B) securities purchased under agreement to resell. 
C) receivables from customers. 
D) exchange membership. 
A) receivables from other broker-dealers. 
B) securities purchased under agreement to resell. 
C) receivables from customers. 
D) exchange membership.

Question 4

By 2015,there were approximately ________ securities firms and investment banks operating.

Accepted Answer

A) 9,100 
B) 7,600 
C) 1,200 
D) 4,400 
A) 9,100 
B) 7,600 
C) 1,200 
D) 4,400

Question 5

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. 
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.

Question 6

Venture capital firms assess two major issues when deciding to invest in a company.Which of the following indicates these issues?

Accepted Answer

A) Company management and other funding secured by the company. 
B) A proven company track record and the risk-return tradeoff of an investment. 
C) Potential for a high return on investment and an easy exit strategy. 
D) Funding requested and company financial statements. 
A) Company management and other funding secured by the company. 
B) A proven company track record and the risk-return tradeoff of an investment. 
C) Potential for a high return on investment and an easy exit strategy. 
D) Funding requested and company financial statements.

Question 7

In order to realize a return on their investment,venture capital firms eventually sell their equity interest in a company they helped to fund.

Accepted Answer

A) True 
 B)False

Question 8

As compared to venture capital firms,private equity firms specialize in assisting existing companies that have proven themselves in their industry.

Accepted Answer

A) True 
 B)False

Question 9

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. 
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.

Question 10

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.
-How much money does Rochester Industries receive?

Accepted Answer

A) $15,000,000. 
B) $84,000,000. 
C) $76,200,000. 
D) $82,200,000. 
A) $15,000,000. 
B) $84,000,000. 
C) $76,200,000. 
D) $82,200,000.

Question 11

Which of the following is NOT considered a trading activity of securities firms?

Accepted Answer

A) Position trading. 
B) Pure arbitrage. 
C) Liquidity trading. 
D) Risk arbitrage trading. 
A) Position trading. 
B) Pure arbitrage. 
C) Liquidity trading. 
D) Risk arbitrage trading.

Question 12

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. 
A) $139,500,500. 
B) $137,812,500. 
C) $155,000,000. 
D) $153,125,000.

Question 13

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a firm commitment basis. The investment banker pays $31.50 per share to NetChoice, Inc. for the 5 million shares of stock. It then sells those shares to the public for $30.00 per share.
-If the investment bank can sell the shares for $34 per share,what is the profit (loss)to the investment banker?

Accepted Answer

A) Profit of $12,500,000. 
B) Profit of $10,000,000. 
C) Profit of $7,000,000. 
D) Loss of $7,500,000. 
A) Profit of $12,500,000. 
B) Profit of $10,000,000. 
C) Profit of $7,000,000. 
D) Loss of $7,500,000.

Question 14

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

Question 15

The Securities Investor Protection Corporation (SIPC)protects investors against losses of up to ____ on securities firm failures.

Accepted Answer

A) $100,000 
B) $200,000 
C) $500,000 
D) $1,000,000 
A) $100,000 
B) $200,000 
C) $500,000 
D) $1,000,000

Question 16

Competition from internet-based and electronic exchanges has led to a decrease in profits of market making.

Accepted Answer

A) True 
 B)False

Question 17

Creating a secondary market in an asset by a securities firm involves the function of

Accepted Answer

A) cash management. 
B) investing. 
C) market making. 
D) trading. 
A) cash management. 
B) investing. 
C) market making. 
D) trading.

Question 18

The number of investment banks and securities firms expanded rapidly from 1980 to October 1987.

Accepted Answer

A) True 
 B)False

Question 19

Securities trading and underwriting is a profit generating activity that requires FIs to hold an inventory of securities they trade.

Accepted Answer

A) True 
 B)False

Question 20

National full-line investment and securities 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) specialize more in corporate finance with very low activity in trading securities. 
D) are more highly regulated than smaller firms. 
A) may specialize in providing service to both retail and corporate customers. 
B) usually serve only as discount brokers without offering investment advice. 
C) specialize more in corporate finance with very low activity in trading securities. 
D) are more highly regulated than smaller firms.

Exam 4: Financial Services: Securities Firms and Investment Banks

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

Since the recent financial crisis,the securities and investment banking industry has been expanding and adding new lines of business.

The largest category of assets for securities firms as of 2015 was

By 2015,there were approximately ________ securities firms and investment banks operating.

Which of the following differentiates securities firms from investment banks?

Venture capital firms assess two major issues when deciding to invest in a company.Which of the following indicates these issues?

In order to realize a return on their investment,venture capital firms eventually sell their equity interest in a company they helped to fund.

As compared to venture capital firms,private equity firms specialize in assisting existing companies that have proven themselves in their industry.

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

Which of the following is NOT considered a trading activity of securities firms?

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?

The Securities Investor Protection Corporation (SIPC)protects investors against losses of up to ____ on securities firm failures.

Competition from internet-based and electronic exchanges has led to a decrease in profits of market making.

Creating a secondary market in an asset by a securities firm involves the function of

The number of investment banks and securities firms expanded rapidly from 1980 to October 1987.

Securities trading and underwriting is a profit generating activity that requires FIs to hold an inventory of securities they trade.

National full-line investment and securities firms

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

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

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