Question 1

Legislation designed to improve corporate governance practices, especially as they relate to accounting practices, is the

Accepted Answer

A) National Securities Markets Improvement Act of 1996. 
B) Sarbanes-Oxley Act. 
C) U.S.A.Patriot Act. 
D) Financial Services Modernization Act of 1999. 
E) Bank Holding Company Act. 
A) National Securities Markets Improvement Act of 1996. 
B) Sarbanes-Oxley Act. 
C) U.S.A.Patriot Act. 
D) Financial Services Modernization Act of 1999. 
E) Bank Holding Company Act. B

Question 2

If the investment bank can sell the shares for $9.75 per share, what is the profit (loss) to the investment banker?

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) Loss of $1,000,000. 
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) Loss of $1,000,000. B

Question 3

Investment banks engage in activities such as advising on mergers, acquisitions, and corporate restructuring.

Accepted Answer

A) True 
 B)False  True

Question 4

If the investment bank can sell the shares for $34 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. 
E) $105,000,000. 
A) $150,000,000. 
B) $157,500,000. 
C) $112,000,000. 
D) $125,000,000. 
E) $105,000,000.

Question 5

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. 
E) $110,000,000. 
A) $15,000,000. 
B) $84,000,000. 
C) $76,200,000. 
D) $82,200,000. 
E) $110,000,000.

Question 6

In market-making

Accepted Answer

A) principal transactions are two-way transactions on behalf of customers, such as a dealer working for a fee or commission. 
B) principal transactions are 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) Answers A and C only. 
E) Answers B and C only. 
A) principal transactions are two-way transactions on behalf of customers, such as a dealer working for a fee or commission. 
B) principal transactions are 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) Answers A and C only. 
E) Answers B and C only.

Question 7

The market-making function of investment banking can be described as

Accepted Answer

A) agency transactions are two-way transactions on behalf of customers, such as a dealer working for a fee or commission. 
B) agency transactions are 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) Answers A and C only. 
E) Answers B and C only. 
A) agency transactions are two-way transactions on behalf of customers, such as a dealer working for a fee or commission. 
B) agency transactions are 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) Answers A and C only. 
E) Answers B and C only.

Question 8

Agency transactions of market makers are two-way transactions on behalf of customers

Accepted Answer

A) True 
 B)False

Question 9

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 10

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. 
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.

Question 11

A corporate venture capital firm

Accepted Answer

A) has publicly-traded common stock. 
B) provides equity funds to companies that already have publicly traded common stock. 
C) is a subsidiary of a nonfinancial corporation. 
D) provides debt funding to only to established corporations. 
E) is subject to more stringent disclosure requirements than other venture capital firms. 
A) has publicly-traded common stock. 
B) provides equity funds to companies that already have publicly traded common stock. 
C) is a subsidiary of a nonfinancial corporation. 
D) provides debt funding to only to established corporations. 
E) is subject to more stringent disclosure requirements than other venture capital firms.

Question 12

Which of the following is NOT a back-office service function in the securities industry?

Accepted Answer

A) Correspondent banking services. 
B) Escrow services. 
C) Clearance of securities transactions. 
D) Research services. 
E) Services related to settlement of securities transactions. 
A) Correspondent banking services. 
B) Escrow services. 
C) Clearance of securities transactions. 
D) Research services. 
E) Services related to settlement of securities transactions.

Question 13

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. 
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.

Question 14

The Financial Services Modernization Act of 1999 allowed investment banks and securities firms to offer deposit accounts to individuals.

Accepted Answer

A) True 
 B)False

Question 15

The goal of the Sarbanes-Oxley Act is to prevent deceptive accounting and management practices and thus to increase confidence in corporate governance.

Accepted Answer

A) True 
 B)False

Question 16

The largest source of funding for securities service firms and investment banks as an industry is repurchase agreements.

Accepted Answer

A) True 
 B)False

Question 17

The U.S.A. Patriot Act 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 above. 
E) Answers A and C only. 
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 above. 
E) Answers A and C only.

Question 18

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 19

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

Accepted Answer

A) True 
 B)False

Question 20

The primary advantage to the investor of a brokerage 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.

Exam 4: Financial Services: Securities Brokerage and Investment Banking

Legislation designed to improve corporate governance practices, especially as they relate to accounting practices, is the

If the investment bank can sell the shares for $9.75 per share, what is the profit (loss) to the investment banker?

Investment banks engage in activities such as advising on mergers, acquisitions, and corporate restructuring.

If the investment bank can sell the shares for $34 per share, how much money does NetChoice, Inc. receive?

How much money does Rochester Industries receive?

In market-making

The market-making function of investment banking can be described as

Agency transactions of market makers are two-way transactions on behalf of customers

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.

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

A corporate venture capital firm

Which of the following is NOT a back-office service function in the securities industry?

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

The Financial Services Modernization Act of 1999 allowed investment banks and securities firms to offer deposit accounts to individuals.

The goal of the Sarbanes-Oxley Act is to prevent deceptive accounting and management practices and thus to increase confidence in corporate governance.

The largest source of funding for securities service firms and investment banks as an industry is repurchase agreements.

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

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

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

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

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

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Interest Rate Risk I

Interest Rate Risk II

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Credit Risk: Loan Portfolio and Concentration Risk

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Technology and Other Operational Risks

Liability and Liquidity Management

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