Question 1

Name the benefits derived from the existence of stock exchanges.

Accepted Answer

The answer of Name the benefits derived from the existence...

Question 2

Because they occur in private,stricter regulations are placed on the private placement of securities.

Accepted Answer

Private placements of securities are typically subject to fewer and less stringent regulations compared to public offerings, as they are offered to a limited number of sophisticated investors and do not require the same level of disclosure.

Question 3

Explain the difference between (a)public offerings and private placements,(b)primary markets and secondary markets,(c)the money market and the capital market,and (d)organized security exchanges and over-the-counter markets.

Accepted Answer

The answer of Explain the difference between (a)public offerings and...

Question 4

Investment banking firms are prohibited from selling securities due to conflicts of interest.

Accepted Answer

Investment banking firms are not prohibited from selling securities, but they are required to properly disclose any conflicts of interest that may arise from such sales.

Question 5

The need for extensive regulation of investment banking firms is limited due to the highly competitive nature of that industry.

Accepted Answer

The need for extensive regulation of investment banking firms is not limited, as demonstrated by the numerous regulatory bodies and regulations in place to oversee their activities. Investment banking is a complex and high-risk industry, with the potential to impact the broader economy. Regulations help to ensure that investment banks operate in a safe and transparent manner, protecting both investors and the stability of the financial system.

Question 6

Preferred stock is traded in the money market,while common stock is traded in the capital market.

Accepted Answer

Preferred stock can be traded in both the money market and the capital market, while common stock is exclusively traded in the capital market.

Question 7

The syndicate can be thought of as a wholesaler of securities and the dealer organization as a retailer of securities.

Accepted Answer

This statement is true. The syndicate is responsible for underwriting and distributing new securities to the market, much like a wholesaler distributes goods to retailers. The dealer organization, on the other hand, buys and sells securities to individual or institutional investors, much like a retailer sells goods to consumers.

Question 8

The competitive bid purchase is largely confined to railroad,public utility,and municipal bond issues.

Accepted Answer

The statement is true. Competitive bid purchase is a common method used for purchasing bonds issued by railroads, public utilities, and municipal governments.

Question 9

Only individual investors participate in public offerings,while institutional investors participate in private placements.

Accepted Answer

Institutional investors can also participate in public offerings, while private placements are often limited to accredited investors and institutional investors.

Question 10

The bid price is the price that a dealer will pay for a security; the asked price is the price at which she will sell a security.

Accepted Answer

The bid price is indeed the price a dealer is willing to pay to buy a security, while the ask (or asked) price is the price at which the dealer is willing to sell the security.

Question 11

The investment banking business is dominated by a few very large,stand-alone investment banking firms.

Accepted Answer

The investment banking business is dominated by a few very large banking firms, but these firms usually have other businesses besides their investment banking operations. For example, J.P. Morgan Chase has both a commercial banking and investment banking division, while Goldman Sachs also operates a wealth management division.

Question 12

It is common practice among the largest corporations to sell their securities directly to investors.

Accepted Answer

The largest corporations typically sell their securities through investment banks or other financial institutions, rather than directly to individual investors.

Question 13

An investment banker assumes underwriting risk in both negotiated purchases and privileged subscriptions with standby agreements.

Accepted Answer

The answer of An investment banker assumes underwriting risk in...

Question 14

The New York Stock Exchange (NYSE)is

Accepted Answer

The New York Stock Exchange (NYSE) is a hybrid market, allowing for both face-to-face trading on the floor of the stock exchange and automated electronic trading.

Question 15

The difference between the price the corporation gets and the public offering price is called the broker-dealer spread.

Accepted Answer

The difference between the price the corporation gets and the public offering price is called the underwriting spread. The broker-dealer spread refers to the difference between the price at which a broker-dealer sells a security to clients and the price at which the broker-dealer can buy the security from the market.

Question 16

The investment banker prefers to avoid a negotiated purchase because it tends to be the least profitable arrangement for the investment banker.

Accepted Answer

The statement is incorrect. A negotiated purchase, where the investment banker helps facilitate negotiations between the buyer and seller, can lead to higher fees and commissions for the investment banker as opposed to other types of transactions.

Question 17

A group of investment bankers organized to distribute large securities issues is known as a syndicate.

Accepted Answer

This statement is true. A syndicate is a group of investment bankers who come together to distribute large securities issues, such as corporate bonds, to investors. By forming a syndicate, the bankers are able to spread out the risk of the investment and ensure that the securities are sold quickly and efficiently.

Question 18

The investment banker performs three basic functions: (1)underwriting,(2)distributing,and (3)advising.

Accepted Answer

The investment banker performs these three basic functions to assist corporations and governments in raising capital through securities offerings.

Question 19

When the corporation sells securities directly to the investment public without involving an investment banker,it is called a privileged subscription.

Accepted Answer

When a corporation sells securities directly to the investment public without involving an investment banker, it is called a direct public offering (DPO), not a privileged subscription.

Question 20

The negotiated purchase is the most prevalent method of securities distribution in the private sector.

Accepted Answer

The negotiated purchase is indeed the most prevalent method of securities distribution in the private sector. This involves a direct negotiation between the issuer and the purchaser (such as a private equity firm or venture capital firm) to agree on the terms of the purchase. This method is commonly used for private placements of stock or debt securities, and can be more flexible than other methods such as public offerings.

Quiz 2: The Financial Markets and Interest Rates