Deck 11: Securities and Markets

Question 1

Private placement can avoid SEC registration and all SEC regulations.

Answer 1

False

Question 2

An IPO is the initial sale of an equity to brokers.

Answer 2

False

Question 3

All public offerings are regulated by the Securities and Exchange Commission (SEC).

Answer 3

True

Question 4

Typically in an IPO, investors request to purchase more shares than they expect to receive, hoping to receive about 25 percent of their order.

Question 5

In a financial context, due diligence refers to the detailed study of a corporation.

Question 6

The Facebook IPO was the second largest IPO in history by a U.S. firm.

Question 7

Under a best-effort agreement, investment bankers try to sell the securities of the issuing corporation, but they assume no risk for a possible failure of the flotation.

Question 8

Only brokers can purchase an equity during an IPO.

Question 9

Firm commitment flotation costs are typically lower than those of best efforts.

Question 10

The time when investment bankers were discussing the firm's risk and return potential, the preliminary price range is called a "dog-and-pony" show.

Question 11

The issuer has no price risk in a firm commitment offering once the offer price is set.

Question 12

Existing securities are traded in the primary market.

Question 13

Tombstones are announcements of securities offerings placed in newspapers and other publications.

Question 14

The spread is the difference between the price paid by the investment bank and the price paid by the public.

Question 15

A syndicate is a group of several investment banking firms that participate in underwriting and distributing a security issue.

Question 16

The primary market is a market in which securities are traded among investors.

Question 17

A prospectus is highly specific to each company. Only minimal general information is required.

Question 18

An underwriting agreement is a contract in which the investment banker agrees to do its best to sell securities to investors at the highest price it can; the investment banker assumes no risk for the possibility that it may fail to issue all authorized shares .

Question 19

The aftermarket is a period of time after an IPO.

Question 20

An underwriting agreement is a contract in which the investment banker agrees to buy securities at a predetermined price and then resell them to investors.

Question 21

An important function of the Securities and Exchange Commission is to pass judgment on the investment merit of a security.

Question 22

The flotation costs of an initial public offering are comprised solely of direct costs and the spread.

Question 23

All securities must be listed before they may be traded on the New York Stock Exchange.

Question 24

Federal regulation of investment banking is administered primarily under the provisions of the Investment Banking Monitoring and Control Act of 1999.

Question 25

The Glass-Steagall Act of 1933 ended the ability of commercial banks to act as underwriters of newly issued securities.

Question 26

A pre-emptive right refers to the right of existing shareholders to sue management in order to head off potential actions by management that would adversely affect the price of the stock.

Question 27

All firms can use shelf registration which saves issuers both time and money.

Question 28

Shelf registration allows firms to register only debt issues with the SEC, and have them available to sell for two years.

Question 29

Underpricing represents the difference between the aftermarket price and the initial offering price.

Question 30

A broker satisfies the investor's trades by buying and selling securities from his or her own inventory.

Question 31

The flotation costs, relative to the amount raised, are usually lower for a firm commitment offering than a best-eff ort offering.

Question 32

Facebook ended its first full day of trading down from its offerring price.

Question 33

A dealer is a person who assists in the trading process by buying or selling securities in the market for an investor.

Question 34

A dealer is one who assists the trading process by buying or selling securities in the market for an investor.

Question 35

The secondary markets provide pricing information and liquidity to investors.

Question 36

On average and across countries, underpricing securities issues represents a significant cost to firms that issue securities.

Question 37

Rights offerings among public corporations became infrequent in the United States during the 1980s and 1990s.

Question 38

Underpricing represents the difference between the aftermarket price and the offering price.

Question 39

IPO underpricing occurs only in the United States.

Question 40

A Dutch auction is an offering process in which investors bid on the price and quantity of securities they wish to purchase.

Question 41

The bid is always higher than the ask.

Question 42

A limit order is an order to sell stock at the market price when the price of the stock falls to a specified level.

Question 43

The term "Big Board" is another name for the NASDAQ market.

Question 44

A buy-stop order is an order to sell stock at the market price when the price of the stock falls to a specified level.

Question 45

A market order is an order for immediate purchase or sale at the best possible price.

Question 46

The secondary markets provides a means to evaluate a firm's management.

Question 47

DMMs are assigned dealers who have the responsibility of making a market in an assigned security.

Question 48

The American Stock Exchange is also known as Amex.

Question 49

A short sale is the sale of securities that the seller does not own.

Question 50

Organized securities exchanges include the New York Stock Exchange, the American Stock Exchange, and NASDAQ.

Question 51

A house broker handle the commission brokers' overflow.

Question 52

Ask - Bid = Spread.

Question 53

If there were no secondary markets for trading between investors, there would be no primary market for the initial sale of securities.

Question 54

SLPs are assigned dealers who have the responsibility of making a market in an assigned security.

Question 55

An odd lot is a trade involving 100 shares or multiples of 100 shares.

Question 56

Floor brokers act as agents to execute customers' orders for securities purchases and sales.

Question 57

The maintenance margin is the minimum margin to which an investment may fall before a margin call is placed.

Question 58

Specialists are dealers who have the responsibility of making a market in an assigned security.

Question 59

A commission broker and an independent broker are the same thing.

Question 60

Selling more shares than you own is illegal.

Question 61

Buying on margin is when investors borrow money and invest it along with their own funds in securities.

Question 62

Reasonable listing requirements allow investors to know the quality of the listing broker.

Question 63

The margin is the price of purchasing one more share of stock.

Question 64

Margin trading is safe.

Question 65

The margin is the profit made from selling a share of stock.

Question 66

The fourth market is a market for large blocks of listed stocks that operate outside the confines of the organized exchanges.

Question 67

A market is liquid if trades are executed quickly at a price close to fair market value.

Question 68

American depository receipts are receipts which represent foreign shares to U.S. investors.

Question 69

During a margin call, the investor is required to invest addition cash to increase the position's equity..

Question 70

A brokerage name is when an investor's stock certificates are kept at the brokerage firm rather than taking personal possession of them.

Question 71

Stock commissions vary from brokerage firm to brokerage fi rm.

Question 72

Trades can be for a round lot of 1,000 shares or an odd lot, a trade of fewer than 1,000 shares.

Question 73

The Dow-Jones Industrial Average is made up of 30 large blue-chip stocks.

Question 74

ADRs are created and traded in dollars on U.S. exchanges. They represent a given number of shares of a foreign firm's stock.

Question 75

A good market will have four characteristics: liquidity, quick and accurate trade execution, reasonable listing requirements, and safety.

Question 76

Commissions on stock trades are set by the stock exchanges.

Question 77

In most years, about 5 to 10 stocks are replaced in the S&P 500 index.

Question 78

Over the counter markets are organized exchanges for trading securities such as the New York Stock Exchange.

Question 79

A global depository receipt is traded on the American Stock Exchange.

Question 80

Investors can purchase stocks with no money down.