Financial Institutions Management 5th Canadian Edition Test Bank
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1.
Investment banks
specialize in the origination, underwriting, and distribution of new securities
issued by corporations or governments.
True False
True False
2. Investment banks engage in activities such as
advising on mergers, acquisitions, and corporate restructuring.
True False
True False
3. Securities trading and underwriting is a
profit generating activity that requires FIs to hold an inventory of securities
they trade.
True False
True False
4. The concentration of business among the
largest firms in the securities firm/investment banking business has increased
significantly since the stock market crash of 1987.
True False
True False
5. Securities underwriting and trading is an
activity that requires a considerable investment in long-term assets and
relatively small investments in short-term assets.
True False
True False
6. The revision of the Bank Act and other
regulatory changes have been the cause of the increase in interindustry mergers
of investment banks and securities firms since 1987.
True False
True False
7. The value of assets is the traditional measure
of size in the securities brokerage and investment banking industry.
True False
True False
8.
National integrated
investment firms provide business services to both retail and corporate
customers.
True False
True False
9. The objective of the investment function of
securities firms (funds management) is to allocate assets so that they
outperform relative risk-return performance benchmark.
True False
True False
10. Because the business of funds management
generates fees based on the size of the pool of assets managed, the flow of
income is more volatile than either investment banking function or the trading
function.
True False
True False
11. In a public offering of a new security, an
investment banker places a new issue of securities with a handful of private,
usually large, investors.
True False
True False
12. Initial public offerings (IPOs) are first-time
issues of firms whose equity has not previously traded in an organized market.
True False
True False
13. In order for an investment bank to perform a
firm commitment offering of securities, they must maintain at least 20% equity
on their balance sheet.
True False
True False
14. A best-efforts offering of a security is more
risky for an investment bank than a firm commitment offering.
True False
True False
15. When conducting a firm commitment offering,
the investment bank is acting as an agent on behalf of the issuing company or
government.
True False
True False
16. Venture capital firms often make loans to
finance new and often high-risk companies that may have no business history.
True False
True False
17. As compared to venture capital firms, private
equity firms specialize in assisting existing companies that have proven
themselves in their industry.
True False
True False
18. An angel venture capitalist is likely to be a
wealthy individual that makes equity investments in unsuccessful, bankrupt
firms.
True False
True False
19. In order to realize a return on their
investment, venture capital firms sell their equity interest in the company.
True False
True False
20. Market making involves creating a primary
market in a financial asset.
True False
True False
21. Market makers in a stock are obligated to buy
shares from sellers even when the market for the stock is declining.
True False
True False
22. Agency transactions of market makers are
two-way transactions on behalf of customers
True False
True False
23. Principal transactions allow the market maker
to always make a profit regardless of whether the market price for a specific
stock is rising or falling.
True False
True False
24. In pure arbitrage, a trader would sell an
asset in one market at one price while buying the same asset in another market
at a higher price.
True False
True False
25. Electronic brokerage allows an investor to
have direct access to the trading floor.
True False
True False
26. Cash management accounts were an early attempt
by commercial banks to provide investment banking services to individuals.
True False
True False
27. 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.
True False
True False
28. Activity and performance trends in the
investment banking industry are highly correlated with general economic
expansions and recessions.
True False
True False
29. 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.
True False
True False
30. The largest source of funding for securities
service firms and investment banks as an industry is repurchase agreements.
True False
True False
31. As of 2012, equity capital in the securities
industry measured over 12 percent.
True False
True False
32. The goal of the U.S. Sarbanes-Oxley Act is to
prevent deceptive accounting and management practices and thus to increase
confidence in corporate governance.
True False
True False
33. The U.S.A. Patriot Act requires firms to
implement processes to deter money laundering.
True False
True False
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