Q&A Hero

Q: Match the following pieces of legislation with the function achieved by each regulation as stated in questionA. Securities Act of 1933B. Securities Exchange Act of 1934C. Investment Advisers ActD. Investment Company ActE. Insider Trading and Securities Fraud Enforcement Act of 1988F. Market Reform Act of 1990G. National Securities Markets Improvement Act of 1996Allows the SEC to introduce circuit breakers to halt trading on exchanges.

Q: Match the following pieces of legislation with the function achieved by each regulation as stated in questionA. Securities Act of 1933B. Securities Exchange Act of 1934C. Investment Advisers ActD. Investment Company ActE. Insider Trading and Securities Fraud Enforcement Act of 1988F. Market Reform Act of 1990G. National Securities Markets Improvement Act of 1996Requires a mutual fund to file a registration statement with the SEC.

Q: Match the following pieces of legislation with the function achieved by each regulation as stated in questionA. Securities Act of 1933B. Securities Exchange Act of 1934C. Investment Advisers ActD. Investment Company ActE. Insider Trading and Securities Fraud Enforcement Act of 1988F. Market Reform Act of 1990G. National Securities Markets Improvement Act of 1996Requires mutual funds to develop mechanisms and procedures to avoid insider trading abuses.

Q: Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding.Suppose Morningstar issues another 250 shares and purchases shares of Intel with the funds. What is its new NAV of Morningstar? (Assume the NAV found before the price change in P&G and Microsoft in the previous question). A. $39.20.B. $55.20.C. $34.40.D. $30.00.E. $34.00.

Q: An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a best-efforts basis. The investment banker is able to sell 4.5 million shares for $31.00 per share and it charges NetChoice, Inc. $0.375 per share sold.What is the profit to the investment banker if all 5 million shares were sold for $35 per share? A. Profit of $1,275,000.B. Loss of $1,875,000.C. Profit of $1,875,000.D. Loss of $3,125,000.E. Profit of $3,125,500.

Q: An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a best-efforts basis. The investment banker is able to sell 4.5 million shares for $31.00 per share and it charges NetChoice, Inc. $0.375 per share sold.If the investment bank were able to sell all 5 million shares for $35, how much money would NetChoice, Inc. receive? A. $195,675,000.B. $187,500,000.C. $130,250,000.D. $175,000,000.E. $173,125,000.

Q: An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a best-efforts basis. The investment banker is able to sell 4.5 million shares for $31.00 per share and it charges NetChoice, Inc. $0.375 per share sold.What is the profit to the investment banker it sells 4.5 million shares for $29 per share? A. Profit of $1,687,500.B. Loss of $2,487,500.C. Profit of $1,875,000.D. Loss of $3,125,000.E. Profit of $3,125,500.

Q: An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a best-efforts basis. The investment banker is able to sell 4.5 million shares for $31.00 per share and it charges NetChoice, Inc. $0.375 per share sold.If the investment bank sells 4.5 million shares for $29 per share, how much money does NetChoice, Inc. receive? A. $145,000,000.B. $130,500,000.C. $143,125,000.D. $128,812,500.E. $115,762,500.

Q: An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a best-efforts basis. The investment banker is able to sell 4.5 million shares for $31.00 per share and it charges NetChoice, Inc. $0.375 per share sold.What is the profit to the investment banker if it is able to sell 4.5 million shares for $31 per share? A. Profit of $1,875,000.B. Loss of $1,275,000.C. Profit of $1,687,500.D. Loss of $3,125,000.E. Profit of $3,125,500.

Q: An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a best-efforts basis. The investment banker is able to sell 4.5 million shares for $31.00 per share and it charges NetChoice, Inc. $0.375 per share sold.How much money does NetChoice, Inc. receive? A. $139,500,500.B. $137,812,500.C. $155,000,000.D. $153,125,000.E. $105,000,000.

Q: An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a firm commitment basis. The investment banker pays $31.50 per share to NetChoice, Inc. for the 5 million shares of stock. It then sells those shares to the public for $30.00 per share.If the investment bank can sell the shares for $34 per share, what is the profit (loss) to the investment banker? A. Profit of $12,500,000.B. Profit of $10,000,000.C. Profit of $7,000,000.D. Loss of $7,500,000.E. Loss of $12,500,000.

Q: An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a firm commitment basis. The investment banker pays $31.50 per share to NetChoice, Inc. for the 5 million shares of stock. It then sells those shares to the public for $30.00 per share.If the investment bank can sell the shares for $34 per share, how much money does NetChoice, Inc. receive? A. $150,000,000.B. $157,500,000.C. $112,000,000.D. $125,000,000.E. $105,000,000.

Q: An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a firm commitment basis. The investment banker pays $31.50 per share to NetChoice, Inc. for the 5 million shares of stock. It then sells those shares to the public for $30.00 per share.What is the profit (loss) to the investment banker? A. Profit of $7,500,000.B. Profit of $2,000,000.C. Profit of $7,000,000.D. Loss of $7,500,000.E. Loss of $2,000,000.

Q: An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a firm commitment basis. The investment banker pays $31.50 per share to NetChoice, Inc. for the 5 million shares of stock. It then sells those shares to the public for $30.00 per share.How much money does NetChoice, Inc. receive? A. $150,000,000.B. $157,500,000.C. $112,000,000.D. $125,000,000.E. $105,000,000.

Q: An investment banker agrees to underwrite an issue of 10 million shares of stock for Rochester Industries on a best-efforts basis. The investment banker is able to sell 8 million shares for $10.50 per share, and it charges Rochester Industries $0.225 per share sold.What would be the profit to the investment banker it were able to sell all 10 million shares for $12.75 per share? A. Profit of $2,250,000.B. Loss of $7,500,000.C. Profit of $7,500,000.D. Loss of $3,000,000.E. Profit of $3,750,000.

Q: An investment banker agrees to underwrite an issue of 10 million shares of stock for Rochester Industries on a best-efforts basis. The investment banker is able to sell 8 million shares for $10.50 per share, and it charges Rochester Industries $0.225 per share sold.If the investment bank were able to sell all 10 million shares for $12.75 per share, how much money does Rochester Industries receive? A. $127,500,000.B. $125,250,000.C. $105,675,000.D. $102,000,000.E. $99,000,000.

Q: An investment banker agrees to underwrite an issue of 10 million shares of stock for Rochester Industries on a best-efforts basis. The investment banker is able to sell 8 million shares for $10.50 per share, and it charges Rochester Industries $0.225 per share sold.What is the profit to the investment banker it sells 8 million shares for $9.75 per share? A. Profit of $1,000,000.B. Loss of $7,500,000.C. Profit of $7,000,000.D. Loss of $7,000,000.E. Profit of $1,800,000.

Q: An investment banker agrees to underwrite an issue of 10 million shares of stock for Rochester Industries on a best-efforts basis. The investment banker is able to sell 8 million shares for $10.50 per share, and it charges Rochester Industries $0.225 per share sold.If the investment bank sells 8 million shares for $9.75 per share, how much money does Rochester Industries receive? A. $76,200,000.B. $84,000,000.C. $105,000,000.D. $82,200,000.E. $78,000,000.

Q: An investment banker agrees to underwrite an issue of 10 million shares of stock for Rochester Industries on a best-efforts basis. The investment banker is able to sell 8 million shares for $10.50 per share, and it charges Rochester Industries $0.225 per share sold.What is the profit to the investment banker if it is able to sell 8 million shares for $10.50 per share? A. Profit of $1,000,000.B. Loss of $7,500,000.C. Profit of $7,000,000.D. Loss of $7,000,000.E. Profit of $1,800,000.

Q: An investment banker agrees to underwrite an issue of 10 million shares of stock for Rochester Industries on a best-efforts basis. The investment banker is able to sell 8 million shares for $10.50 per share, and it charges Rochester Industries $0.225 per share sold.How much money does Rochester Industries receive? A. $15,000,000.B. $84,000,000.C. $76,200,000.D. $82,200,000.E. $110,000,000.

Q: An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share.If the investment bank can sell the shares for $9.75 per share, what is the profit (loss) to the investment banker? A. Profit of $1,000,000.B. Loss of $7,500,000.C. Profit of $7,000,000.D. Loss of $7,000,000.E. Loss of $1,000,000.

Q: An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share.If the investment bank can sell the shares for $9.75 per share, how much money does TWResearch receive? A. $105,000,000.B. $150,000,000.C. $112,000,000.D. $125,000,000.E. $110,000,000.

Q: An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share.What is the profit (loss) to the investment banker? A. Profit of $1,000,000.B. Profit of $2,000,000.C. Profit of $7,000,000.D. Loss of $7,500,000.E. Loss of $1,000,000.

Q: An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share.How much money does TWResearch receive? A. $105,000,000.B. $150,000,000.C. $112,000,000.D. $125,000,000.E. $110,000,000.

Q: As of 2011, approximately ________ of the industry total brokerage fee income was generated by firms operating as subsidiaries of commercial bank holding companies. A. $12.1 billion B. $8.6 billion C. $16.5 billion D. $32.4 billion E. $40.3 billion

Q: As of 2011, approximately ________ of the industry total brokerage fee income was generated by firms operating as subsidiaries of commercial bank holding companies. A. 15 percent B. 25 percent C. 40 percent D. 50 percent E. 65 percent

Q: Which of the following two investment banks were granted approval to be chartered as commercial banks during the most recent financial crisis? A. Merrill Lynch and Bear Stearns. B. Goldman Sachs and Morgan Stanley. C. Bear Stearns and Lehman Brothers. D. Merrill Lynch and Morgan Stanley. E. Lehman Brothers and Goldman Sachs.

Q: Which of the following two investment banks were acquired by financial services holding companies during the most recent financial crisis? A. Merrill Lynch and Bear Stearns. B. Goldman Sachs and Morgan Stanley. C. Bear Stearns and Lehman Brothers. D. Merrill Lynch and Morgan Stanley. E. Lehman Brothers and Goldman Sachs.

Q: Which of the following investment banks is no longer in business as a result of the most recent financial crisis? A. Morgan Stanley. B. Bear Stearns. C. Lehman Brothers. D. Goldman Sachs. E. Merrill Lynch.

Q: Which of the following 2 firms survived as investment banks following the most recent financial crisis? A. Morgan Stanley and Bear Stearns. B. Goldman Sachs and Merrill Lynch. C. Lehman Brothers and Morgan Stanley. D. Merrill Lynch and Lehman Brothers. E. None of the above.

Q: Considering the securities firms and investment banking industries, The National Securities Markets Improvement Act (NSMIA) of 1996 A. appointed the Federal Reserve System as the primary regulator of the industry. B. diminished the role of the National Association of Securities Dealers (NASD) in regulating the industry. C. allowed individual states the right to require registration of firms operating in the state. D. effectively affirmed the SEC as the primary regulator of the industry. E. required all firms in the industry to maintain minimum amounts of capital.

Q: Which of the following is a self-regulatory organization involved in the day-to-day regulation of trading practices? A. Securities and Exchange Commission. B. New York Stock Exchange. C. Securities Investor Protection Corporation. D. Chicago Board of Trade. E. All of the above.

Q: Which of the following is NOT a provision of Sarbanes-Oxley Act? A. Created an independent auditing oversight board. B. Increased penalties for corporate wrongdoers. C. Forced faster and more extensive financial disclosure. D. Created avenues of recourse for aggrieved shareholders. E. Required investment analysts' compensation to be a function of the quality and accuracy of research they produce.

Q: Which of the following is true about reverse repurchase agreements? A. They are securities purchased under agreements to resell. B. They account for less than 5 percent of assets of broker-dealers. C. They amount to 40.8 percent of total liabilities and equity of broker-dealers. D. They are treated as liabilities. E. They are securities temporarily lent in exchange for cash received.

Q: Identify a major reason behind the increase in domestic underwriting activity during the 1990s. A. Enhanced non-trading profits. B. High long-term interest rates. C. Low long-term dividend rates. D. Growth in the asset-backed securities market. E. Decreased securitization of debt.

Q: According to SEC Rule 415, A. larger corporations can register their new issues with the SEC up to two years in advance. B. firms should disclose soft dollar arrangements to their clients. C. large investors are allowed to begin trading privately placed securities among themselves. D. firms are required to maintain records of the information used to verify the identity of a person opening an account. E. publicly held companies must disclose all material information that might affect investment decisions to all investors at the same time.

Q: The Securities Investor Protection Corporation (SIPC) protects investors against losses of up to ____ on securities firm failures. A. $100,000 B. $200,000 C. $500,000 D. $1,000,000 E. $25,000,000

Q: The U.S.A. Patriot Act requires financial services firms to A. verify the identity of any person seeking to open an account. B. maintain records of the information used to verify a person's identity. C. determine whether a person opening an account is on a list of suspected terrorists. D. All of the above. E. Answers A and C only.

Q: Legislation designed to improve corporate governance practices, especially as they relate to accounting practices, is the A. National Securities Markets Improvement Act of 1996. B. Sarbanes-Oxley Act. C. U.S.A. Patriot Act. D. Financial Services Modernization Act of 1999. E. Bank Holding Company Act.

Q: Program trading involves A. online trading services provided to customers by electronic trading securities firms. B. computer-driven buying or selling of baskets of 15 or more stocks by institutional traders. C. purchase and sale of assets that are potentially but not necessarily equivalent. D. buying blocks of securities in anticipation of some information release. E. providing a platform for customers to trade without the use of a broker.

Q: Securities firms have equity ratios that are lower than those for commercial banks because their balance sheets contain a larger portion of A. illiquid assets. B. current liabilities. C. long term liabilities. D. fixed assets. E. liquid assets.

Q: Soft dollars is a term often used in reference to the portion of a fee or commission that is allocated to A. research and other advisory services. B. custody and escrow services. C. clearance and settlement services. D. banking services. E. back office services.

Q: An attempt by a market maker to earn a profit on the price movements of securities by taking inventory positions for its own account is called A. risk arbitrage. B. an agency transaction. C. best efforts underwriting. D. pure arbitrage. E. a principal transaction.

Q: Which of the following is NOT a back-office service function in the securities industry? A. Correspondent banking services. B. Escrow services. C. Clearance of securities transactions. D. Research services. E. Services related to settlement of securities transactions.

Q: The process of providing custody and escrow services, clearance and settlement services, and research and other advisory services by a securities firm involves the function of A. mergers and acquisitions. B. market making. C. investment banking. D. back-office functions. E. cash management services.

Q: The primary advantage to the investor of a brokerage firm cash management account (CMA) over commercial bank deposit accounts is that A. no FDIC insurance is required on CMAs. B. no regulatory oversight of CMAs. C. they make it easier to buy and sell securities using funds from the CMA. D. CMAs guarantee higher rates of return than money market deposit accounts. E. Regulation Q interest rate ceilings do not apply to CMAs.

Q: Offering bank deposit-like accounts to individual customers by a securities firm involves A. the function of investing. B. the function of cash management. C. the function of market making. D. the function of trading. E. the function of investment banking.

Q: Participation in the activities relating to the underwriting and distribution of new issues of debt and equity by a securities firm involves the function of A. investing. B. merger and acquisitions. C. market making. D. investment banking. E. trading.

Q: Creating a secondary market in an asset by a securities firm involves the function of A. cash management. B. investing. C. market making. D. trading. E. investment banking.

Q: The management of pools of assets by securities firms is considered to be the function of A. market making. B. investment banking. C. trading. D. investing. E. cash management.

Q: National full-line investment and brokerage firms A. may specialize in providing service to both retail and corporate customers. B. usually serve only as discount brokers without offering investment advice. C. may specialize more in corporate finance with high activity in trading securities. D. All of the above. E. Answers A and C only.

Q: In comparison to a typical commercial bank, an investment bank is likely to have A. lower levels of capital. B. higher reliance on long-term debt. C. lower levels of repurchase agreements. D. higher levels of net interest margin. E. higher levels of loans to customers.

Q: The largest category of liabilities of broker-dealers as of the beginning of 2012 was A. bank loans payable. B. securities sold under repurchase agreements. C. payables to customers. D. short positions in securities and commodities. E. payables to non-customers.

Q: The largest category of assets for broker-dealers as of the beginning of 2012 was A. receivables from other broker-dealers. B. securities purchased under agreement to resell. C. receivables from customers. D. exchange membership. E. long position in securities and commodities.

Q: Pure arbitrage trading involves A. buying blocks of securities in anticipation of some information release. B. purchase of stock in a company being acquired and the sale of stock in the acquiring company. C. exploitation of a difference between a company's current value and its estimated liquidation value. D. buying an asset in one market at one price and selling it immediately in another market at a higher price. E. simultaneous purchase and sale of similar shares in a single market.

Q: Which of the following is NOT considered a trading activity of securities firms? A. Position trading. B. Pure arbitrage. C. Liquidity trading. D. Risk arbitrage trading. E. Program trading.

Q: In market-making A. principal transactions are two-way transactions on behalf of customers, such as a dealer working for a fee or commission. B. principal transactions are when market makers take long or short positions and seek profits on price movements. C. market makers take inventory positions to stabilize the market in the securities. D. Answers A and C only. E. Answers B and C only.

Q: The market-making function of investment banking can be described as A. agency transactions are two-way transactions on behalf of customers, such as a dealer working for a fee or commission. B. agency transactions are when market makers take long or short positions and seek profits on price movements. C. market makers take inventory positions to stabilize the market in the securities. D. Answers A and C only. E. Answers B and C only.

Q: The dominant form of institutional venture capital firms operate as A. Corporation. B. Subsidiary of a financial company. C. Bank holding company. D. Limited partnership. E. General partnership.

Q: A corporate venture capital firm A. has publicly-traded common stock. B. provides equity funds to companies that already have publicly traded common stock. C. is a subsidiary of a nonfinancial corporation. D. provides debt funding to only to established corporations. E. is subject to more stringent disclosure requirements than other venture capital firms.

Q: The function of institutional venture capital firms is to A. find and fund the most promising new firms. B. lend funds on a long-term basis to promising new companies with no track record. C. take equity positions in successful established companies. D. lend funds to established companies that are faltering. E. none of the above.

Q: Which of the following is true of private placement of securities? A. Securities are placed with few large institutional investors. B. Securities of private firms are sold to the investing public at lower prices. C. They must be registered with the SEC. D. Public trading in these securities is not allowed. E. Subject to more stringent disclosure and informational requirements than those imposed by the SEC on publicly registered issues.

Q: Which of the following is most typical of broker-dealers? A. They assist in underwriting of new securities. B. They assist in trading of existing securities. C. They assist in issuing new securities. D. They assist in underwriting and distribution of new securities. E. All of the above.

Q: Discount brokers A. are securities firms focused on providing research support for customers. B. conduct trades for customers but do not offer investment advice. C. allow customers to receive investment advice at very low rates. D. effect trades for customers on- or offline while offering investment advice. E. are electronic trading securities firms that allow customers to trade without the use of a broker.

Q: Which of the following is true? A. Investment bankers earn fees based on the success of their placements when they underwrite using a best-efforts basis. B. Investment bankers earn fees based on the success of their placement when they underwrite using firm-commitment basis. C. With best-efforts underwriting, investment bankers act as principals because they purchase securities from the issuer and sell them at a higher price. D. An investment banker is acting as an agent when conducting a firm-commitment offering of securities. E. Answers B and C only.

Q: Which of the following would be a key area of activity for an investment bank specializing in the commercial side of the business? A. Purchase of existing securities. B. Sale of securities in the secondary market. C. Brokerage of existing securities. D. Underwriting issues of new securities. E. All of the above.

Q: Which of the following differentiates securities firms from investment banks? A. Securities firms are concerned with the commercial side of the business while investment banks are concerned with the retail side of the business. B. Securities firms assist in trading of existing securities while investment banks specialize in underwriting new securities. C. Securities firms underwrite new issues of securities while investment banks provide brokerage services. D. Securities firms originate new issues of securities and investment banks underwrite the securities. E. Securities firms are concerned with private placements of securities whereas investment banks are concerned with publicly traded securities.

Q: The most common benchmark of relative size of a firm in the securities trading and underwriting industry is based on A. total asset value. B. total equity. C. total debt. D. annual sales. E. annual profits.

Q: By 2012, there were approximately ________ securities firms and investment banks operating. A. 9,100 B. 7,600 C. 1,200 D. 480 E. 220

Q: Securities firms and investment banks are more involved internationally than other member of the financial services industry.

Q: Seeking international partners is a recent trend among securities firms and investment banks.

Q: The Security Investor Protection Corporation (SIPC) protects investors against losses of up to $25,000,000 caused by the failure of a securities firm.

Q: The U.S.A. Patriot Act requires firms to implement processes to deter money laundering.

Q: The goal of the Sarbanes-Oxley Act is to prevent deceptive accounting and management practices and thus to increase confidence in corporate governance.

Q: As of 2012, equity capital in the securities industry measured over 12 percent.

Q: The largest source of funding for securities service firms and investment banks as an industry is repurchase agreements.

Q: Most securities firms are subject to large amounts of interest rate and market risk because of the large amount financial assets on the balance sheet.

Q: Activity and performance trends in the investment banking industry are highly correlated with general economic expansions and recessions.

Q: The principal reasons for the growth in profitability of the securities industry in the middle 1990s were the trading profits from fixed income securities and the growth in new issue underwriting.

Q: Cash management accounts did not exist before 1999.