Chapter 24 Securities Operations 475 Chapter 24 Securities Operations 1 Which of the following is not a service that is commonly performed by an investment banking firm A commercial banking B origination C underwriting D distribution ANSWER A 2 Investment banking firms focus on market services brokerage firms focus on market services A primary primary B secondary primary C primary secondary D secondary secondary ANSWER C 3 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 ANSWER A 4 All information relevant to the security as well as the agreement between the issuer and the investment banking firm must be provided in the A origination B registration statement C best efforts agreement D none of these ANSWER B 5 Research indicates that investment banking firms tend to A overprice IPOs B underprice IPOs C price IPOs correctly D do none of these ANSWER B 476 Chapter 24 Securities Operations 6 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 ANSWER B 7 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 ANSWER C 8 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 ANSWER D 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 ANSWER D 10 When investment banking firms raise capital for corporations their primary role is as a n A intermediary B lender creditor C investor D none of these ANSWER A 11 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 much more than or much less than depending on the amount of stock to be issued ANSWER A Chapter 24 Securities Operations 477 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 ANSWER D 13 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 ANSWER B 14 Competitive bidding by investment banking 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 institutions ANSWER C 15 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 ANSWER A 16 In a a firm places its entire issue of new securities without the underwriting services of an investment banking firm A market placement B public placement C shelf registration agreement D private placement ANSWER D 478 Chapter 24 Securities Operations 17 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 these ANSWER B 18 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 ANSWER D 19 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 ANSWER B 20 The value of a securities firm is typically related to interest rate movements A not B inversely C both of these D neither of these ANSWER B 21 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 ANSWER D 22 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 ANSWER B Chapter 24 Securities Operations 479 23 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 investment banking 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 ANSWER D 24 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 investment banking 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 ANSWER A 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 ANSWER C 26 Which of the following services do investment banking firms IBFs not provide A origination B underwriting stock C distribution of stock D advising E IBFs provide all of these services ANSWER E 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 these ANSWER B 480 Chapter 24 Securities Operations 28 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 ANSWER A 29 Which of the following is not an SEC rule A Analysts of securities firms underwriting an IPO cannot promote