Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Investment banks specialize in the origination,underwriting,and distribution of new securities issued by corporations or governments.

Accepted Answer

A) True 
 B)False

Question 4

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

Question 5

The function of institutional venture capital firms is to

Accepted Answer

A) find and fund the most promising new firms. 
B) lend funds on a long-term basis to promising new companies with no track record. 
C) take equity positions in successful established companies. 
D) lend funds to established companies that are faltering. 
A) find and fund the most promising new firms. 
B) lend funds on a long-term basis to promising new companies with no track record. 
C) take equity positions in successful established companies. 
D) lend funds to established companies that are faltering.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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.
-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. 
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.

Question 8

The most common benchmark of relative size of a firm in the securities trading and underwriting industry is based on

Accepted Answer

A) total asset value. 
B) total equity. 
C) total debt. 
D) annual sales. 
A) total asset value. 
B) total equity. 
C) total debt. 
D) annual sales.

Question 9

Offering bank deposit-like accounts to individual customers by a securities firm involves

Accepted Answer

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

Question 10

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

Question 11

The Security Investor Protection Corporation (SIPC)protects investors against losses of up to $25,000,000 caused by the failure of a securities firm.

Accepted Answer

A) True 
 B)False

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. 
-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. 
A) Profit of $1,687,500. 
B) Loss of $2,487,500. 
C) Profit of $1,875,000. 
D) Loss of $3,125,000.

Question 13

Cash management accounts did not exist before 1999.

Accepted Answer

A) True 
 B)False

Question 14

The U.S.A.Patriot Act (2003)requires financial services firms 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 the options. 
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 the options.

Question 15

Which of the following is true of private placement of securities?

Accepted Answer

A) Securities are placed with few large institutional investors. 
B) Securities of private firms are sold to the investing public at lower prices. 
C) The securities must be registered with the SEC. 
D) Public trading in these securities is not allowed. 
A) Securities are placed with few large institutional investors. 
B) Securities of private firms are sold to the investing public at lower prices. 
C) The securities must be registered with the SEC. 
D) Public trading in these securities is not allowed.

Question 16

Market making involves creating a primary market in a financial asset.

Accepted Answer

A) True 
 B)False

Question 17

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.
-How much money does NetChoice,Inc.receive?

Accepted Answer

A) $150,000,000. 
B) $157,500,000. 
C) $112,000,000. 
D) $125,000,000. 
A) $150,000,000. 
B) $157,500,000. 
C) $112,000,000. 
D) $125,000,000.

Question 18

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 19

As of 2015,equity capital in the securities industry measured over 12 percent.

Accepted Answer

A) True 
 B)False

Question 20

As of 2015,approximately ________ of the industry total brokerage fee income was generated by firms operating as subsidiaries of commercial bank holding companies.

Accepted Answer

A) $12.1 billion 
B) $10.3 billion 
C) $16.5 billion 
D) $32.4 billion 
A) $12.1 billion 
B) $10.3 billion 
C) $16.5 billion 
D) $32.4 billion

Exam 4: Financial Services: Securities Firms and Investment Banks

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

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

Investment banks specialize in the origination,underwriting,and distribution of new securities issued by corporations or governments.

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

The function of institutional venture capital firms is to

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

The most common benchmark of relative size of a firm in the securities trading and underwriting industry is based on

Offering bank deposit-like accounts to individual customers by a securities firm involves

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

The Security Investor Protection Corporation (SIPC)protects investors against losses of up to $25,000,000 caused by the failure of a securities firm.

Cash management accounts did not exist before 1999.

The U.S.A.Patriot Act (2003)requires financial services firms to

Which of the following is true of private placement of securities?

Market making involves creating a primary market in a financial asset.

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

As of 2015,approximately ________ of the industry total brokerage fee income was generated by firms operating as subsidiaries of commercial bank holding companies.

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