Deck 3: Investment Banking

Question 1

When an individual buys stock through a secondary market (e.g., the NYSE), the firm receives the sales proceeds.​

Answer 1

False

Question 2

A firm that guarantees the proceeds from the sale of a new issue of securities is the​

A) ​brokerage firm
B) ​syndicate
C) ​underwriter
D) ​insurance company

Answer 2

C

Question 3

The purchasing of a new issue of stock is different than buying stock on the NYSE because in the former funds flow to the firm while in the latter the funds flow to the individual selling the shares.​

Answer 3

True

Question 4

The SEC establishes a price for a new issue of securities.​

Question 5

A prospectus gives estimates of a firm's prospective earnings for five years.​

Question 6

The underwriting of an issue of securities guarantees the firm issuing the securities a specified amount of money.​

Question 7

A major function of the NYSE is to facilitate the transfer of funds between investors and firms.​

Question 8

The risk associated with an underwriting rests with the investment bankers.​

Question 9

The price of a new issue is established through the registration process with the SEC.​

Question 10

The larger the dollar value of an underwriting, the smaller is the underwriting discount as a percentage of the offer price.​

Question 11

In an underwriting the managing house forms the syndicate.

Question 12

The market in which securities are initially sold to the general public is the secondary market.​

Question 13

A major function of the New York Stock Exchange is to raise money for firms.​

Question 14

If an investment banker makes a best efforts agreement to sell 1,200,000 shares at $10 a share, the investment banker must sell at least 200,000 shares.

Question 15

In an underwriting, the firm selling (issuing) the securities forms the syndicate.​

Question 16

If a company went public at $10 per share and the shares immediately upon reaching the public sell for $13, the $3 windfall gain goes to the underwriter.

Question 17

Firms whose securities are already publicly held may file a shelf registration for possible future sales of stocks and bonds.​

Question 18

An investment banker specializes in corporate loans.

Question 19

If an issue of securities is overpriced, the underwriters may let the price fall to sell the securities.​

Question 20

In a best efforts agreement to sell new securities, the firm issuing the securities agrees to make the best effort to sell the securities.​

Question 21

Which of the following is not part of the underwriting process?​

A) ​the prospectus
B) ​the Federal Reserve
C) ​the Securities and Exchange Commission
D) ​the syndicate

Question 22

​Venture capitalists

A) ​buy existing securities
B) ​are a source of funds for large firms
C) ​buy securities issued by small, emerging firms
D) ​register the securities they purchase with the SEC

Question 23

​An investment banker is not a financial intermediary because

A) ​it does not transfer money from investors to firms
B) ​it does not create claims on itself
C) ​it does facilitate the transfer of funds
D) ​it creates claims on itself

Question 24

Which of the following is part of the underwriting process?​

A) ​the Federal Reserve
B) ​the Securities Investor Protection Corporation
C) ​FDIC
D) ​the originating house

Question 25

If a stock is initially offered to the public for $20 in an underwriting but the price immediately falls to $15,​
1) the firm received $20 a share
2) the initial investors sustain a loss
3) demand exceeded supply
4) supply exceeded demand

A)​1, 2, and 3
B)​1, 2, and 4
C)​2 and 3
D)​2 and 4

Question 26

The regulation of securities markets​

A) ​discourages investing by requiring the registration of investors
B) ​is enforced by the Federal Reserve
C) ​protects investors from their own mistakes
D) ​provides investors with information to make informed decisions

Question 27

If the initial offer price for new securities is too high, the underwriters may
1) purchase the securities with their own funds
2) sell the securities at the offer price
3) let the price fall

A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​1, 2, and 3

Question 28

​An investment banker
1) often underwrites new issues of securities
2) may be a division within a brokerage firm
3) facilitates the sale of new securities

A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​all three

Question 29

An investment banker​
1) is usually not a banker
2) is frequently a division of a brokerage firm
3) serves as a middleman between financial intermediaries and firms issuing new securities

A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​only 3

Question 30

If the initial offer price is too low,​
1) supply will exceed demand
2) demand will exceed supply
3) the price of the security will rise
4) the price of the security will decline

A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Question 31

The Securities and Exchange Commission regulates​

A) ​trading in publicly held securities
B) ​trading in privately held securities
C) ​the margin requirement
D) ​the amount a stock's price may change

Question 32

The Securities Investor Protection Corporation protects individuals from​

A) ​fraud by corporations
B) ​making poor investment decisions
C) ​other investors who fail to make delivery
D) ​brokerage firm failures