Question 1

An entrepreneur looking for financing to get her small personally owned business up and running should probably consider

Accepted Answer

A) an IPO. 
B) a seasoned stock offering. 
C) a public debt offering. 
D) a venture capitalist. 
E) a syndicated loan. 
A) an IPO. 
B) a seasoned stock offering. 
C) a public debt offering. 
D) a venture capitalist. 
E) a syndicated loan.

Question 2

An example of a pure arbitrage strategy is to simultaneously buy and sell the same security in two different markets at different prices.

Accepted Answer

A) True 
 B)False

Question 3

A company issued 5 million new shares of stock. An investment bank agrees to underwrite these shares on a best efforts basis. The investment bank is able to sell 3.7 million shares for $34.50 per share,and it charges commission of $0.52 per share sold. How much money will the company receive?

Accepted Answer

A) $125,726,000 
B) $127,650,000 
C) $130,000,000 
D) $169,900,000 
E) $172,500,000 
A) $125,726,000 
B) $127,650,000 
C) $130,000,000 
D) $169,900,000 
E) $172,500,000

Question 4

An unregistered issue sold to a few large institutional buyers is an example of a(n)

Accepted Answer

A) best efforts offering. 
B) fully underwritten public offering. 
C) shelf offering. 
D) private placement. 
E) SEC Rule 415 offering. 
A) best efforts offering. 
B) fully underwritten public offering. 
C) shelf offering. 
D) private placement. 
E) SEC Rule 415 offering.

Question 5

A market maker buys IBM at $185 for his own account and sells the stock later in the day at $187. He is acting as a broker in this transaction.

Accepted Answer

A) True 
 B)False

Question 6

Which one of the following statements about venture capitalists is not correct?

Accepted Answer

A) Venture capitalists contribute to equity financing rather than make loans. 
B) Venture capitalists are passive investors. 
C) Most private venture capitalists are organized as limited partnerships. 
D) The federal government licenses some private firms to provide lower-cost funds to entrepreneurs. 
E) Angel venture capitalists are wealthy individuals who fund business start-ups. 
A) Venture capitalists contribute to equity financing rather than make loans. 
B) Venture capitalists are passive investors. 
C) Most private venture capitalists are organized as limited partnerships. 
D) The federal government licenses some private firms to provide lower-cost funds to entrepreneurs. 
E) Angel venture capitalists are wealthy individuals who fund business start-ups.

Question 7

The ________ insures losses of funds deposited with securities firms in the event of failure of a securities firm.

Accepted Answer

A) SEC 
B) NASD 
C) SIA 
D) SIPC 
E) FDIC 
A) SEC 
B) NASD 
C) SIA 
D) SIPC 
E) FDIC

Question 8

The major result of the NSMIA was to

Accepted Answer

A) reduce state regulatory powers over securities firms. 
B) establish the SIPC. 
C) create the NASD. 
D) All of these choices are correct. 
E) None of these choices are correct. 
A) reduce state regulatory powers over securities firms. 
B) establish the SIPC. 
C) create the NASD. 
D) All of these choices are correct. 
E) None of these choices are correct.

Question 9

An investment bank agrees to pay $26.75 for 5 million shares of a company in a firm commitment stock offering. It then can sell those shares to the public for $25.50 per share. What is the profit to the investment bank?

Accepted Answer

A) Profit of $6,250,000 
B) Loss of $6,250,000 
C) Loss of $5,000,000 
D) Loss of $7,500,000 
E) Profit of $1,000,000 
A) Profit of $6,250,000 
B) Loss of $6,250,000 
C) Loss of $5,000,000 
D) Loss of $7,500,000 
E) Profit of $1,000,000

Question 10

Classify the following trading activities as either a position trade,a pure arbitrage trade,or a risk arbitrage trade.
I. Buy Intel at $120 and hold it for six months in hopes of a price rise.
II. Buy GE on the NYSE and immediately sell it at a higher price on the Pacific Exchange.
III. Short sell Dell in anticipation of a poor quarterly earnings report.

Accepted Answer

I. Position trade; I

Question 11

Firms in the securities industry are required to maintain a minimum capital to asset ratio of ________.

Accepted Answer

A) 2 percent. 
B) 4 percent. 
C) 6 percent. 
D) 8 percent. 
E) 10 percent. 
A) 2 percent. 
B) 4 percent. 
C) 6 percent. 
D) 8 percent. 
E) 10 percent.

Question 12

FINRA is a government agency with mandate to protect America's investors by making sure the securities industry operates fairly and honestly.

Accepted Answer

A) True 
 B)False

Question 13

The process of creating a secondary market for securities or contracts is termed brokerage.

Accepted Answer

A) True 
 B)False

Question 14

Profitability at investment banking firms has been very stable each year since 2001.

Accepted Answer

A) True 
 B)False

Question 15

What are the major types of firms in the investment banking industry? Briefly describe each.

Accepted Answer

Diversified full-line investment banks t

Question 16

In 2016,the top five underwriters engaged in about ________ of total U.S. underwriting volume.

Accepted Answer

A) 15.8 percent 
B) 22.4 percent 
C) 26.7 percent 
D) 44.7 percent 
E) 56.2 percent 
A) 15.8 percent 
B) 22.4 percent 
C) 26.7 percent 
D) 44.7 percent 
E) 56.2 percent

Question 17

Underwriting new securities issuance requires that the investment bank

Accepted Answer

A) buys the issue at a certain price and then sells it in the primary market. 
B) provides research and legal advice only to the issuing company. 
C) buys the issue at a certain price and then sells it in the secondary market. 
D) provides its best effort to sell the securities,the unsold portion goes back to the issuer. 
E) purchases securities in the secondary market when they are undervalued. 
A) buys the issue at a certain price and then sells it in the primary market. 
B) provides research and legal advice only to the issuing company. 
C) buys the issue at a certain price and then sells it in the secondary market. 
D) provides its best effort to sell the securities,the unsold portion goes back to the issuer. 
E) purchases securities in the secondary market when they are undervalued.

Question 18

An investment manager directs a certain client's orders to a certain broker for execution in exchange for research from the broker. This arrangement is referred to as a:

Accepted Answer

A) Soft dollar arrangement 
B) Best effort arrangement 
C) Position trading 
D) Private placement 
E) Commission trades 
A) Soft dollar arrangement 
B) Best effort arrangement 
C) Position trading 
D) Private placement 
E) Commission trades

Question 19

As a result of the alleged conflicts of interest between analysts and underwriting,which of the following changes were implemented?
I. Analysts cannot participate in nor attend certain presentations to potential investors conducted by investment bankers associated with underwriting an issue.
II. Analyst compensation can no longer be tied to the amount of underwriting business a firm generates.
III. Securities firms must divest stock research divisions to ensure independence from their investment banking business.

Accepted Answer

A) I only 
B) I and II only 
C) I and III only 
D) II and III only 
E) I,II,and III 
A) I only 
B) I and II only 
C) I and III only 
D) II and III only 
E) I,II,and III

Question 20

What are soft dollar fees or commissions? How can these lead to conflicts of interest for investment bankers?

Accepted Answer

The term "soft dollar" can mean differen

Exam 16: Securities Firms and Investment Banks

An entrepreneur looking for financing to get her small personally owned business up and running should probably consider

An example of a pure arbitrage strategy is to simultaneously buy and sell the same security in two different markets at different prices.

A company issued 5 million new shares of stock. An investment bank agrees to underwrite these shares on a best efforts basis. The investment bank is able to sell 3.7 million shares for $34.50 per share,and it charges commission of $0.52 per share sold. How much money will the company receive?

An unregistered issue sold to a few large institutional buyers is an example of a(n)

A market maker buys IBM at $185 for his own account and sells the stock later in the day at $187. He is acting as a broker in this transaction.

Which one of the following statements about venture capitalists is not correct?

The ________ insures losses of funds deposited with securities firms in the event of failure of a securities firm.

The major result of the NSMIA was to

An investment bank agrees to pay $26.75 for 5 million shares of a company in a firm commitment stock offering. It then can sell those shares to the public for $25.50 per share. What is the profit to the investment bank?

Firms in the securities industry are required to maintain a minimum capital to asset ratio of ________.

FINRA is a government agency with mandate to protect America's investors by making sure the securities industry operates fairly and honestly.

The process of creating a secondary market for securities or contracts is termed brokerage.

Profitability at investment banking firms has been very stable each year since 2001.

What are the major types of firms in the investment banking industry? Briefly describe each.

In 2016,the top five underwriters engaged in about ________ of total U.S. underwriting volume.

Underwriting new securities issuance requires that the investment bank

An investment manager directs a certain client's orders to a certain broker for execution in exchange for research from the broker. This arrangement is referred to as a:

What are soft dollar fees or commissions? How can these lead to conflicts of interest for investment bankers?

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters