Question 1

What is the profit to the investment banker it sells 8 million shares for $9.75 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 2

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 3

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 4

A best-efforts offering of a security is more risky for an investment bank than a firm commitment offering.

Accepted Answer

A) True 
 B)False

Question 5

The change to decimalization of stock market transactions has lead to an increase in income from the market making activity of investment banks and securities firms.

Accepted Answer

A) True 
 B)False

Question 6

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 7

As of October 1987, there were over 9,500 securities firms and investment banks.

Accepted Answer

A) True 
 B)False

Question 8

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) They must be registered with the SEC. 
D) Public trading in these securities is not allowed. 
E) Subject to more stringent disclosure and informational requirements than those imposed by the SEC on publicly registered issues. 
A) Securities are placed with few large institutional investors. 
B) Securities of private firms are sold to the investing public at lower prices. 
C) They must be registered with the SEC. 
D) Public trading in these securities is not allowed. 
E) Subject to more stringent disclosure and informational requirements than those imposed by the SEC on publicly registered issues.

Question 9

In pure arbitrage, a trader would sell an asset in one market at one price while buying the same asset in another market at a higher price.

Accepted Answer

A) True 
 B)False

Question 10

If the investment bank were able to sell all 5 million shares for $35, how much money would NetChoice, Inc. receive?

Accepted Answer

A) $195,675,000. 
B) $187,500,000. 
C) $130,250,000. 
D) $175,000,000. 
E) $173,125,000. 
A) $195,675,000. 
B) $187,500,000. 
C) $130,250,000. 
D) $175,000,000. 
E) $173,125,000.

Question 11

National full-line 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 the above. 
E) Answers A and C only. 
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 the above. 
E) Answers A and C only.

Question 12

In comparison to a typical commercial bank, an investment bank is likely to have

Accepted Answer

A) lower levels of capital. 
B) higher reliance on long-term debt. 
C) lower levels of repurchase agreements. 
D) higher levels of net interest margin. 
E) higher levels of loans to customers. 
A) lower levels of capital. 
B) higher reliance on long-term debt. 
C) lower levels of repurchase agreements. 
D) higher levels of net interest margin. 
E) higher levels of loans to customers.

Question 13

When conducting a firm commitment offering, the investment bank is acting as an agent on behalf of the issuing company or government.

Accepted Answer

A) True 
 B)False

Question 14

Venture capital firms often make loans to finance new and often high-risk companies that may have no business history.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 17

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 18

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

Question 19

Most securities firms are subject to large amounts of interest rate and market risk because of the large amount financial assets on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 20

The objective of the investment function of securities firms (funds management) is to allocate assets so that they outperform relative risk-return performance benchmark.

Accepted Answer

A) True 
 B)False

Exam 4: Financial Services: Securities Brokerage and Investment Banking

What is the profit to the investment banker it sells 8 million shares for $9.75 per share?

If the investment bank were able to sell all 10 million shares for $12.75 per share, how much money does Rochester Industries receive?

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.

A best-efforts offering of a security is more risky for an investment bank than a firm commitment offering.

The change to decimalization of stock market transactions has lead to an increase in income from the market making activity of investment banks and securities firms.

What is the profit to the investment banker if it is able to sell 8 million shares for $10.50 per share?

As of October 1987, there were over 9,500 securities firms and investment banks.

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

In pure arbitrage, a trader would sell an asset in one market at one price while buying the same asset in another market at a higher price.

If the investment bank were able to sell all 5 million shares for $35, how much money would NetChoice, Inc. receive?

National full-line investment and brokerage firms

In comparison to a typical commercial bank, an investment bank is likely to have

When conducting a firm commitment offering, the investment bank is acting as an agent on behalf of the issuing company or government.

Venture capital firms often make loans to finance new and often high-risk companies that may have no business history.

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

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

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

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

Most securities firms are subject to large amounts of interest rate and market risk because of the large amount financial assets on the balance sheet.

The objective of the investment function of securities firms (funds management) is to allocate assets so that they outperform relative risk-return performance benchmark.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Mutual Funds and Hedge Funds

Financial Services: Insurance

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