Davidson; Management - 3rd Australasian Edition



1.
All of the following are the major services of an investment banking firm except:
A.
make commercial loans.
B.
bring new security issues to market.
C.
trading and brokerage.
D.
arrangement of the selling group.


2.
Full-service brokerage service includes
A.
origination, underwriting, and sales.
B.
registration of securities, storage of securities, and execution of trades.
C.
execution of trades, investment advice, and margin credit.
D.
cash management service, private placements, and security distribution.


3.
All of the following can be associated with a private placement except:
A.
financing includes debt or equity securities.
B.
the direct financial market.
C.
used by both lesser-known firms and large, well-known firms in need of funds.
D.
the underwriting spread is usually lower.


4.
The commercial banking services that investment banking/full service brokerage firms and commercial banks now compete intensely for are:
A.
consumer loans and deposits.
B.
commercial loans and deposits.
C.
investment securities and check clearing operations.
D.
private placements and corporate underwriting.


5.
All of the following is associated with the origination function of investment banking except:
A.
design of the security to fit the needs of the market and the issuing firms.
B.
filing of the required registration statements.
C.
obtain a credit rating on a debt issue.
D.
commit to a specific price to the issuing firm and attempt to sell the security in the market.


6.
All but one of the following is true in a private placement,
A.
The sale of securities directly to the ultimate investor and not through a public offering.
B.
The underwriting function cannot be avoided.
C.
A fee is earned for the origination/selling or uniting the supplier and user of funds.
D.
A private placement may reduce the total flotation costs for a business or government.


7.
If a company has never offered securities to the public, the investment banking will offer the securities in the primary market as
A.
a seasoned offering.
B.
a rights offering.
C.
an IPO.
D.
a best efforts offering.


8.
In a best efforts underwriting offer,
A.
the investment bank is compensated based on the number of securities sold.
B.
the risk of the securities not selling or not selling at a desired price is borne by the issuing firm, not the investment bank.
C.
typically, the smaller and more riskier issues are forced to use this type of offering.
D.
all of the above are true


9.
The preliminary and final prospectus provided prospective investors in a new security issue is a summary of the
A.
registration statement filed with Federal Reserve.
B.
public announcement of price and number of securities issued by the SEC.
C.
registration statement filed with the SEC.
D.
duties of the investment banker in the primary offering.


10.
Universal banks were/are:
A.
commercial banks underwriting IPO.
B.
financial institutions that can engage in deposit taking, making loans, brokerage activities, securities underwriting, and offering insurance services.
C.
investment banks operating in the Australia. prior to 1980.
D.
none of the above.


11.
In a best efforts underwriting offer,
A.
the investment bank is compensated based on the number of securities sold.
B.
the risk of the securities not selling or not selling at a desired price is borne by the issuing firm, not the investment bank.
C.
typically, the smaller and more riskier issues are forced to use this type of offering.
D.
all of the above are true


12.
The best example of an effort to manage the inventory risk is
A.
the formation of a selling group.
B.
the formation of an underwriting syndicate.
C.
allotting shares of the issue to participating brokers.
D.
paying a high price to the issuing firm.


13.
It is called an underwritten offer if:
A.
the risk of selling the issue at a price higher than that promised to the issuer is borne by the investment bank.
B.
the difference between the price at which the issue is sold and that promised to the issuer represents the underwriting spread or the profit earned by the investment bank.
C.
When the investment bank guarantees the issuing firm a certain price.
D.
all of the above


14.
The major source of funds for brokers and dealers is
A.
customer accounts balances.
B.
call loans from commercial banks.
C.
their net worth.
D.
loans from the SEC.


15.
All but one of the following is associated with the services provided by full-service brokerage firms?
A.
execution of trades
B.
storage of securities
C.
making a market in the customers' securities
D.
investment advice


16.
In a private placement
A.
The underwriting function is avoided.
B.
The extremes of high credit quality firms and low or unknown credit quality firms use private placements.
C.
The terms may be negotiated between the issuer and the investors.
D.
all of the above


17.
Investment bankers tend to reduce their risk of underwriting by
A.
using futures contracts to hedge their price risk.
B.
underpricing a new issue.
C.
reducing the size of the selling group in the underwriting.
D.
reducing the number of investment banking firms in the underwriting.


18.
A _________ is a “market-maker” in securities and trades on a bid/ask basis?
A.
broker
b     arbitrager
B.
dealer
d.     investment banker


19.
A venture capitalist provides seed financing:
A.
at the "idea" stage of a new business
B.
at the product development stage.
C.
at the time of the IPO.
D.
in the year prior to the public offering.


20.
Mezzanine or bridge financing is provided by a venture capital firm for the purpose of:
A.
financing seasonal inventory needs.
B.
financing long-term capital needs.
C.
financing before the IPO.
D.
financing for the railroad connection to the plant.


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