Deck 24: Securities Operations

Question 1

The price of newly issued stock should be ____ the market price of the firm's outstanding stock.

A)about the same as
B)much more than
C)much less than
D)B or C, depending on the amount of stock to be issued

Answer 1

A

Question 2

All information relevant to the security, as well as the agreement between the issuer and the securities firm, must be provided in the

A)origination.
B)registration statement.
C)best-efforts agreement.
D)none of the above

Answer 2

B

Question 3

Under SEC Rule 144A, firms may engage in private placements of stock without filing the extensive registration statement that is required for public placements.

Answer 3

True

Question 4

Which of the following is not a service that is commonly performed by an securities firm?

A)commercial banking
B)origination
C)underwriting
D)distribution

Question 5

When securities firms raise capital for corporations, their primary role is as a(n)

A)intermediary.
B)lender (creditor).
C)investor.
D)B and C

Question 6

The ____ can liquidate failing brokerage firms.

A)Securities and Exchange Commission
B)National Association of Securities Dealers
C)Federal Reserve Board
D)Securities Investor Protection Corporation

Question 7

____ is motivated by the perception that the sum of the parts is sometimes greater than the whole.

A)Bridging
B)Asset stripping
C)Greenmail
D)None of the above

Question 8

Securities firms focus on ____ market services; brokerage firms focus on ____ market services.

A)primary; primary
B)secondary; primary
C)primary; secondary
D)secondary; secondary

Question 9

Which of the following is not a major function of the securities industry?

A)brokerage
B)raising new capital
C)underwriting
D)decisions regarding open market operations

Question 10

Which of the following statements is incorrect?

A)A private bond placement avoids the underwriting fee.
B)Private placements of stocks are more common than private placements of bonds.
C)The provisions of a privately placed bond issue can be tailored to the desires of the purchaser.
D)A possible disadvantage of a private placement is that the demand may not be as strong as for a publicly placed issue.

Question 11

In a ____, a firm places its entire issue of new securities without the underwriting services of an securities firm.

A)market placement
B)public placement
C)shelf-registration agreement
D)private placement

Question 12

A(n) ____ discloses relevant financial data on a firm issuing securities, and the provisions applicable to the security.

A)SEC preferred disclosure form
B)1040 disclosure form
C)shelf-registration
D)prospectus

Question 13

The return to investors who purchase IPO shares at the IPO offer price are ____, and the returns to investors who purchase the shares after the IPO are generally ____.

A)high; high
B)high; low
C)low; high
D)low; low

Question 14

Flotation costs as a percentage of the value of securities issued are ____ for ____ issues.

A)lower; small
B)lower; large
C)higher; large
D)A and C

Question 15

The ____ regulates the issuance of securities.

A)Securities and Exchange Commission
B)National Association of Securities Dealers
C)Federal Reserve Board
D)Securities Investor Protection Corporation

Question 16

Competitive bidding by securities firms for underwriting the issue of new bonds is primarily used for

A)federal government bonds.
B)bonds issued by banks.
C)public utility bonds.
D)bonds issued by non-banking financial institution.

Question 17

Research indicates that securities firms tend to

A)overprice IPOs.
B)underprice IPOs.
C)price IPOs correctly.
D)none of the above

Question 18

The underwriting spread on newly issued bonds is normally ____ that on newly issued stock.

A)less than
B)greater than
C)about the same as
D)less than (for newly issued preferred stock) but greater than (for newly issued common stock)

Question 19

The ____ determines margin requirements on securities purchased.

A)Securities and Exchange Commission
B)National Association of Securities Dealers
C)Federal Reserve Board
D)Securities Investor Protection Corporation

Question 20

Stock offerings are normally based on a firm commitment, whereby the securities firm does not guarantee a price to the issuing corporation.

Question 21

Greenmail refers to

A)acquiring shares in a firm, causing the firm to repurchase the shares at a premium to prevent a takeover.
B)financing provided by securities firms to help support an acquisition.
C)investing in the shares of a firm that is anticipated to experience a leveraged buyout (LBO).
D)acquiring a firm and selling off individual divisions of the firm separately.

Question 22

Requests by customers to purchase or sell securities at a specified price or better are called

A)market orders.
B)limit orders.
C)short-selling.
D)stop-loss orders.

Question 23

As a result of a spinoff, asymmetric information problems between managers and investors may be reduced.

Question 24

Asset-stripping refers to

A)acquiring shares in a firm, causing the firm to repurchase the shares at a premium to prevent a takeover.
B)financing provided by securities firms to help support an acquisition.
C)investing in the shares of a firm that is anticipated to experience a leveraged buyout (LBO).
D)acquiring a firm and selling off individual divisions of the firm separately.

Question 25

Funds received from a bridge loan are commonly used to

A)purchase junk bonds.
B)purchase high-grade corporate bonds.
C)provide temporary financing for an acquisition.
D)provide financing for individual investors that wish to purchase Treasury bonds.

Question 26

Which of the following is not an SEC rule?

A)Analysts of securities firms underwriting an IPO cannot promote new stock for the first 40 days after the IPO.
B)An analyst's compensation should be directly aligned with the amount of business that the analyst brings to the securities firm.
C)Analysts cannot be supervised by the securities department within the securities firm.
D)An analyst's rating must divulge any recent securities business provided by the securities firm that assigned the rating.

Question 27

An order placed by an investors seeking to sell stock when the price reaches a specified minimum is a ____ order.

A)market
B)stop-loss
C)limit
D)none of the above

Question 28

One of the main functions of securities firms is raising capital for corporations.

Question 29

Investors sell a security short when they expect the price of the security to

A)increase substantially.
B)decrease.
C)remain perfectly stable.
D)increase slightly.

Question 30

____ is not included in flotation costs.

A)Issue costs
B)Underwriting spread
C)The price at which the stock is sold through the IBF
D)Registration expenses
E)All of the above

Question 31

As a result of the Financial Services Modernization Act

A)securities firms had to search for loopholes to expand into other types of financial services.
B)firms that formed a special finance holding company were regulated by the SEC.
C)banking, securities activities, and insurance services could be consolidated in a single financial institution.
D)securities firms were prohibited from expanding into other types of financial services.

Question 32

Which of the following services do securities firms (IBFs) not provide?

A)origination
B)underwriting stock
C)distribution of stock
D)advising
E)IBFs provide all of the services above

Question 33

The value of a securities firm is typically ____ related to interest rate movements.

A)positively
B)not
C)inversely
D)A or B

Question 34

The ____ is not involved in the regulation of the securities industry.

A)Financial Accounting Standards Board
B)National Association of Securities Dealers
C)Securities and Exchange Commission
D)Federal Reserve Board
E)All of the above are involved in the regulation of the securities industry.

Question 35

When securities firms facilitate initial public offerings, they attempt to price the stock high enough to satisfy the issuing firm.

Question 36

Requests by customers to purchase or sell securities at the price existing when the order reaches the exchange floor are called

A)limit orders.
B)short-selling.
C)stop-loss orders.
D)market orders.

Question 37

The insurance limit of the Securities Investor Protection Corporation (SIPC) is $____.

A)100,000
B)200,000
C)500,000
D)1,000,000
E)none of the above

Question 38

Securities firms

A)tend to overprice IPOs.
B)tend to underprice IPOs.
C)tend to price IPOs correctly.
D)are typically not involved in IPOs.

Question 39

When a customer orders the sale of securities when the price reaches a specified minimum, this is a

A)market order.
B)short sale.
C)limit order.
D)stop-loss order.

Question 40

When the stock market is depressed, tock transactions tend to decline, causing a reduction in business for securities firms.This is an example of ____ risk.

A)interest rate
B)credit
C)market
D)exchange rate

Question 41

Even after new stock is issued, a securities firm may continue to provide advice on the timing, amount, and terms of future financing.

Question 42

Requests by customers to purchase or sell securities at a specified price or better are called ____ orders.

A)market
B)limit
C)stop-loss
D)specialist
E)none of the above

Question 43

____ is not a service a securities firm provides in placing bonds.

A)Origination
B)Underwriting
C)Distribution
D)Advising
E)All of the above are services securities firms provide in placing bonds

Question 44

Securities and Exchange Commission (SEC) approval of a registration statement guarantees the quality and safety of the securities to be issued.

Question 45

Unlike the standardized provisions of a publicly placed issue, the provisions of a privately placed issue can be tailored to the desires of the purchaser.

Question 46

The compensation paid to securities firms for raising funds is typically in the form of interest income.

Question 47

Which of the following services do securities firms not provide?

A)origination
B)underwriting stock
C)distribution of stock
D)advising
E)securities firms provide all of the services above.

Question 48

Institutional investors that are willing to hold stock for a very short period of time are prime candidates for participating in a private placement.

Question 49

Research documents that securities firms tend to

A)overprice IPOs.
B)underprice IPOs.
C)price IPOs correctly.
D)none of the above

Question 50

An order placed by an investors seeking to sell stock when the price reaches a specified minimum is a ____ order.

A)market
B)stop-buy
C)stop-loss
D)none of the above