Chapter 25
Securities Operations
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1. Investment banking firms (IBFs):
a. originate common stock.
b. underwrite stock issues.
c. advise firms through the origination stage.
d. IBFs do all of the above.
2. The __________ discloses relevant financial data about a firm and provisions applicable to the security.
a. registration statement
b. prospectus
c. best-efforts agreement
d. none of the above
3. Flotation costs as a percentage of the value of securities issued are _____ for ______ issues.
a. lower; larger
b. lower; smaller
c. higher; larger
d. none of the above
4. When arbitrage firms accumulate shares of targets with the expectation that the target would be willing to buy their shares back at a premium, this tactic is known as:
a. asset stripping.
b. a leveraged buyout.
c. greenmail.
d. a bridge loan.
5. Requests by customers to purchase or sell securities at the market price existing when the order reaches the exchange floor are called _______ orders.
a. market
b. limit
c. stop-loss
d. none of the above
6. The ________ regulates the issuance of securities and specifies disclosure rules for the issuers.
a. National Association of Securities Dealers (NASD)
b. Securities and Exchange Commission (SEC)
c. Federal Reserve Board
d. New York Stock Exchange
7. Securities firms are subject to _______ risk.
a. market
b. interest rate
c. credit
d. all of the above
8. The market value of bonds held as investments by securities firms ________ as interest rates _______.
a. increases; decline
b. increases; increase
c. decreases; increase
d. Answers a and c are correct.
9. Some __________ were organized by securities firms.
a. commercial banks
b. insurance companies
c. mutual funds
d. pension funds
10. IBFs do not participate in the _______ market.
a. money
b. bond
c. mortgage
d. IBFs participate in all of the above.
11. Leveraged buyouts are typically financed using:
a. common stock.
b. money market securities.
c. junk bonds.
d. preferred stock.
12. The private placement of bonds avoids the underwriting fee.
a. True.
b. False.
13. A common form of arbitrage is asset stripping.
a. True.
b. False.
14. Investors can speculate on expectations of an increase in securities prices by short selling.
a. True.
b. False.
15. An advantage of a private placement is that the demand is stronger than for a publicly placed issue.
a. True.
b. False.
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