Question 1

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

Question 2

Which of the following is true about reverse repurchase agreements?

Accepted Answer

A) They are securities purchased under agreements to resell. 
B) They account for less than 5 percent of assets of broker-dealers. 
C) They amount to 40.8 percent of total liabilities and equity of broker-dealers. 
D) They are treated as liabilities. 
E) They are securities temporarily lent in exchange for cash received. 
A) They are securities purchased under agreements to resell. 
B) They account for less than 5 percent of assets of broker-dealers. 
C) They amount to 40.8 percent of total liabilities and equity of broker-dealers. 
D) They are treated as liabilities. 
E) They are securities temporarily lent in exchange for cash received.

Question 3

In order to realize a return on their investment, venture capital firms sell their equity interest in the company.

Accepted Answer

A) True 
 B)False

Question 4

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. 
E) Securities firms are concerned with private placements of securities whereas investment banks are concerned with publicly traded 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. 
E) Securities firms are concerned with private placements of securities whereas investment banks are concerned with publicly traded securities.

Question 5

Activity and performance trends in the investment banking industry are highly correlated with general economic expansions and recessions.

Accepted Answer

A) True 
 B)False

Question 6

The dominant form of institutional venture capital firms operate as

Accepted Answer

A) Corporation. 
B) Subsidiary of a financial company. 
C) Bank holding company. 
D) Limited partnership. 
E) General partnership. 
A) Corporation. 
B) Subsidiary of a financial company. 
C) Bank holding company. 
D) Limited partnership. 
E) General partnership.

Question 7

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

Question 8

Which of the following is most typical of broker-dealers?

Accepted Answer

A) They assist in underwriting of new securities. 
B) They assist in trading of existing securities. 
C) They assist in issuing new securities. 
D) They assist in underwriting and distribution of new securities. 
E) All of the above. 
A) They assist in underwriting of new securities. 
B) They assist in trading of existing securities. 
C) They assist in issuing new securities. 
D) They assist in underwriting and distribution of new securities. 
E) All of the above.

Question 9

The U.S.A. Patriot Act requires firms to implement processes to deter money laundering.

Accepted Answer

A) True 
 B)False

Question 10

The process of providing custody and escrow services, clearance and settlement services, and research and other advisory services by a securities firm involves the function of

Accepted Answer

A) mergers and acquisitions. 
B) market making. 
C) investment banking. 
D) back-office functions. 
E) cash management services. 
A) mergers and acquisitions. 
B) market making. 
C) investment banking. 
D) back-office functions. 
E) cash management services.

Question 11

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

Question 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

Seeking international partners is a recent trend among securities firms and investment banks.

Accepted Answer

A) True 
 B)False

Question 15

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

Question 16

Identify a major reason behind the increase in domestic underwriting activity during the 1990s.

Accepted Answer

A) Enhanced non-trading profits. 
B) High long-term interest rates. 
C) Low long-term dividend rates. 
D) Growth in the asset-backed securities market. 
E) Decreased securitization of debt. 
A) Enhanced non-trading profits. 
B) High long-term interest rates. 
C) Low long-term dividend rates. 
D) Growth in the asset-backed securities market. 
E) Decreased securitization of debt.

Question 17

As of 2012, there were over 4,900 securities firms in operation.

Accepted Answer

A) True 
 B)False

Question 18

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. 
E) the Federal Reserve was unable to purchase troubled assets from investment banks, but they could from bank holding companies. 
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. 
E) the Federal Reserve was unable to purchase troubled assets from investment banks, but they could from bank holding companies.

Question 19

Decimalization involves making quotes in the equities markets in units of 1 cent ($0.01) rather than in units of one-eights of a dollar ($0.125).

Accepted Answer

A) True 
 B)False

Question 20

What would be the profit to the investment banker it were able to sell all 10 million shares for $12.75 per share?

Accepted Answer

A) Profit of $2,250,000. 
B) Loss of $7,500,000. 
C) Profit of $7,500,000. 
D) Loss of $3,000,000. 
E) Profit of $3,750,000. 
A) Profit of $2,250,000. 
B) Loss of $7,500,000. 
C) Profit of $7,500,000. 
D) Loss of $3,000,000. 
E) Profit of $3,750,000.

Exam 4: Financial Services: Securities Brokerage and Investment Banking

If the investment bank can sell the shares for $34 per share, what is the profit (loss) to the investment banker?

Which of the following is true about reverse repurchase agreements?

In order to realize a return on their investment, venture capital firms sell their equity interest in the company.

Which of the following differentiates securities firms from investment banks?

Activity and performance trends in the investment banking industry are highly correlated with general economic expansions and recessions.

The dominant form of institutional venture capital firms operate as

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

Which of the following is most typical of broker-dealers?

The U.S.A. Patriot Act requires firms to implement processes to deter money laundering.

The process of providing custody and escrow services, clearance and settlement services, and research and other advisory services by a securities firm involves the function of

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

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

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

Seeking international partners is a recent trend among securities firms and investment banks.

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

Identify a major reason behind the increase in domestic underwriting activity during the 1990s.

As of 2012, there were over 4,900 securities firms in operation.

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

Decimalization involves making quotes in the equities markets in units of 1 cent ($0.01) rather than in units of one-eights of a dollar ($0.125).

What would be the profit to the investment banker it were able to sell all 10 million shares for $12.75 per share?

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