Ch 16 Finance

Full line securities firms engage in all but one of the followingA)Trading and brokerage of existing securitiesB)Corporate restructuring and adviceC)Issuing new securitiesD)Raising money via insured deposits D. Raising money via insured deposits
A best efforts offering is one whereA)The underwriter bears the risk of an unsuccessful offering.B)The bid-ask spread is exceptionally high, but the investment banker does their best to sell the issue anyway.C)The investment banker acts as a principle for the issuer.D)The investment banker acts only as a distribution agent.E)The issue can only be privately placed D. The investment banker acts only as a distribution agent.
If an underwriter overestimates the demand for a firm’s securities in a firm commitment offering the underwriter canA)Sell the shares back to the issuing firm at a discount.B)Lower the bid price to the issuing firm.C)Increase the fees charged to the issuing firm.D)Cancel the issue and refund the fees paid by the issuing firm.E)None of the above E. None of the above
If an underwriter underestimates the demand for a firm’s securities in a firm commitment offering the underwriter canA)Raise the offer price to the publicB)Lower the bid price to the issuing firmC)Increase the fees charged to the issuing firmD)Cancel the issueE)None of the above E. None of the above
Investment firms that pool money from individuals and/or institutions and invest equity funds in start up firms are calledA)Top tier bankersB)Section 20 affiliatesC)Venture capital firmsD)ECNsE)Discount brokerage houses C. Venture capital firms
You buy French Francs in New York and simultaneously sell them in Frankfurtfor a gain. This is an example of A)Position tradingB)Program tradingC)Pure arbitrageD)Risk arbitrageE)Hedging C. Pure arbitrage
An unregistered issue sold to a few large institutional buyers is an example of aA)Best efforts offeringB)Fully underwritten public offeringC)Shelf offeringD)Private placementE)SEC Rule 415 offering D. Private placement
An investment banker agrees to a firm commitment offering of 1 million shares of Ace stock. The offer price is set at $45 and the spread is 50 cents per share. If the stock is actually sold to the public at $44 however, what is the investment banker’s gain or loss?A)$1,000,000 gainB)$1,000,000 lossC)$500,000 gainD)$500,000 lossE)None of the above D. $500,000 loss
Day to day trading practices of securities firms currently may be regulated by which of the following?I.NASDII.SECIII.NYSEIV.SIPCA)I onlyB)II onlyC)I and II onlyD)I and III onlyE)II and IV only D. I and III only
Firms in the securities industry are required to maintain a minimum capital to asset ratio of _____ A)2%B)4%C)6%D)8%E)10% A. 2%
In 2000 and 2001 the top IPO underwriter (by $ volume) wasA)Goldman-SachsB)Merrill-LynchC)Citigroup SSBD)J.P. Morgan ChaseE)UBS Warburg B. Merrill-Lynch
The major result of NSMIA was toA)Reduce state regulatory powers over securities firmsB)Establish the SIPCC)Create the NASDD)All of the aboveE)None of the above A. Reduce state regulatory powers over securities firms
The largest source of funds for a securities firm isA)Short positions in securities and commoditiesB)Payables to other broker dealersC)Securities sold under repurchase agreementD)Call loansE)Securities purchased under agreements to sell C. Securities sold under repurchase agreement
_____________ are examples of investment bankers offering traditional commercial banking services.A)Online brokersB)Cash management accountsC)Underwriting corporate debt and equity offersD)Venture capital fundsE)Mergers and acquisition services B. Cash management accounts
An investment banker may be unwilling to engage in a firm commitment offer if A)The issuer is relatively unknown to the publicB)The issuer desires too low an offer priceC)The investment banker is concerned about overall market price volatilityD)Both A and CE)Both B and C D. Both A and C
When an underwriter engages in a firm commitment, the underwriter is acting asA)A principleB)An agentC)An asset transformer D)An M&A advisor E)All of the above A. A principle
Underwriter spreads will normally be larger onA)A shelf offering than on an IPOB)A best efforts offer than on an IPOC)A best efforts offer than on a seasoned offeringD)An IPO than a seasoned offeringE)Less risky issues D. An IPO than a seasoned offering
In July 2002 the U.S. Congress passed the Corporate Governance and AccountingOversight bill. Among other things, this billI.Created an independent auditing oversight board run by the SECII.Increased penalties for corporate wrongdoersIII.Eliminated the use of stock options for executive compensationA)I onlyB)I and II onlyC)I and III onlyD)II and III onlyE)I, II and III B. I and II only
From 1991 to 2001, foreign investor transactions in U.S. securities ___________ and U.S. investor transactions in foreign securities ______________.A)increased ; increasedB)increased ; decreasedC)decreased ; increasedD)decreased ; decreasedE)increased ; stayed the same A. increased ; increased
The SEC primarily sets standards to regulate securities firms’A)Program trading and arbitrage strategiesB)M&A and cash management activitiesC)Profitability and holding companies activitiesD)Trading and underwriting activitiesE)Corporate advisory and M&A activities D. Trading and underwriting activities
The trading activity involving purchases of large blocks of securities on the expectation of a favorable price move over the next several weeks or months is called _____.A. Pure arbitrageB. Program tradingC. Day tradingD. Position trading B. Program trading
Since the passage of the ______________ securities firms have been allowed to make loans, offer credit and debit cards and ATM servicesA. Garn St.Germain ActB. FDIC Improvement ActC. Depository Institution Deregulation and Monetary Control ActD. Financial Services Modernization Act D. Financial Services Modernization Act
Which of the following are not sources of funds for finance companies?A)Bank loansB)Commercial paper C)EquityD)DepositsE)Neither C) or D) are sources of funds for a finance company D. Deposits
Finance company services includeA)Consumer lendingB)Business lendingC)Mortgage lendingD)All of the aboveE)A. and B. only D. All of the above
The first major finance company wasA)General Motors AcceptanceB)Household Finance CorpC)General Electric Capital CorpD)First Alliance CompanyE)Metrics Companies C. General Electric Capital Corp
A finance company makes a 48 month $15,000 installment loan to a customer. If the annual rate is quoted at 9%, which of the following monthly payments is correct?A)$138.89B)$373.28C)$1,371.92D)$444.21E)None of the above B. $373.28
Sales finance companiesA)Specialize in making loans to customers of a specific retailer or manufacturer B)Specialize in making installments and other loans to whatever consumers are interestedC)Specialize in providing loans to businessesD)Specialize in international factoring and forfaitingE)None of the above A. Specialize in making loans to customers of a specific retailer or manufacturer
In recent years the fastest growing area of business at finance companies has been inA)Auto lendingB)Unsecured consumer loansC)MortgagesD)Leasing and business lendingE)None of the above D. Leasing and business lending
A lender that loans money and charges usurious interest rates and/or fees with nocredit checks is called a(n)A)Ebeneezer B)Greenmailer C)Land shark D)Bird of preyE)Loan shark E. Loan shark
Finance companies enjoy several advantages over banks. These include all but which one of the following?A)Finance companies can offer various types of products and services without regulatory interference.B)Many finance companies have considerable knowledge and expertise about specific industries and products.C)Finance companies can accept riskier customers than banks.D)Finance companies generally have lower overhead than banks.E)Finance companies have lower funds costs than banks. E. Finance companies have lower funds costs than banks.
As compared to banks, the typical finance company loan portfoliosI.Have a lower percentage of mortgagesII.Are shorter termIII.Have higher credit risk A)I onlyB)II onlyC)II and III onlyD)I and III onlyE)I, II and III E. I, II and III
Which of the following do finance companies use to signal their safety and solvency to users?A)Government insuranceB)Substantial equity to asset ratiosC)Letters of credit from high quality banksD)A. and B.E)B. and C. E. B and C
A local finance company allows you to give them a postdated check not cashable for two weeks for $100. In return they give you $90 today. What annual rate must be disclosed on this loan?A)11.11%B)288.89%C)1447.73%D)577.72%E)29.00% B. 288.89%
A loan agreement between Ford Motor Credit and a local Ford dealer is an example of A)Retail motor vehicle loanB)Business equipment loanC)Factoring of receivablesD)Depreciation loanE)None of the above E. None of the above
The largest full service financial institution in the country that includes a finance company isA)CitigroupB)General Electric Capital ServicesC)General Motors Acceptance CorporationD)American ExpressE)CIT Group Holdings A. Citigroup
Although finance company growth has generally been positive for the last ten years _______ _________ finance companies have recently been struggling.A)Business and captiveB)Consumer and wholesaleC)Subprime and electronicD)Mortgage and subprimeE)Sales and business C. Subprime and electronic
Finance companies in foreign countriesA)Usually take insured depositsB)Rarely offer loans to individualsC)Raise most of their capital via issuing commercial paper D)Are more highly regulated than U.S. finance companiesE)Are usually subsidiaries of local banks and dependent on their parents for capital E. Are usually subsidiaries of local banks and dependent on their parents for capital

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