Chapter 24: Securities Operations
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1. Which of the following is not a service that is commonly performed by a securities firm?
a.
setting regulatory rules for stock exchanges
b.
origination
c.
underwriting
d.
distribution
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
2. The ____ regulates the issuance of securities.
a.
b.
c.
d.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
3. When an IPO is planned, all information relevant to the security, as well as the agreement between the issuer and the
securities firm, must be included in the ___________ that is submitted to the Securities and Exchange Commission.
a.
origination
b.
registration statement
c.
best-efforts agreement
d.
none of the above
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
4. When a stock offering is based on a firm commitment, this means that the securities firm does not guarantee a price to
the issuing corporation.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
Chapter 24: Securities Operations
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ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
9. When securities firms help corporations issue bonds, their primary role is as a(n)
a.
intermediary.
b.
lender (creditor).
c.
investor.
d.
B and C
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
10. 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.
B or C, depending on the amount of stock to be issued
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
11. Under SEC Rule 144A, firms may engage in private placements of stock without filing the extensive registration
statement that is required for public placements.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
12. Flotation costs as a percentage of the value of securities issued are ____ for ____ issues.
a.
lower; small
b.
lower; large
Chapter 24: Securities Operations
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c.
higher; large
d.
A and C
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
13. Competitive bidding by securities 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 nonbanking financial institution.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
14. In a ____ of stock, all of the shares issued may be held by a small number of institutional investors.
a.
market placement
b.
public placement
c.
shelf placement
d.
private placement
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
15. After a target firm is acquired, the acquirer may sell off divisions of the target that are not compatible with the
acquirer’s business. This process is known as
a.
bridging.
b.
asset stripping.
c.
greenmail.
d.
none of the above.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
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ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
20. ____ is not a service that a securities firm provides in placing bonds.
a.
Origination
b.
Underwriting
c.
Distribution
d.
Advising
e.
All of the above are services that securities firms provide in placing bonds
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
21. When facilitating a secondary stock offering, a securities firm commonly performs all of the following functions
except _____
a.
origination.
b.
underwriting the stock.
c.
distribution of the stock.
d.
its own purchase of at least 20 percent of the offering.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
22. Asset stripping refers to
a.
acquiring shares in a firm and then causing the firm to repurchase the shares at a premium to prevent a
takeover.
b.
financing provided by securities firms to help support an acquisition.
c.
investing in the shares of a firm that is expected to experience a leveraged buyout (LBO).
d.
selling off individual divisions of an acquired firm that are not compatible with the acquirer’s business.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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23. A bridge loan provided by a securities firm would most likely be made to
a.
a corporation until the corporation raises funds in other ways.
b.
a commercial bank in the federal funds market.
c.
a mutual fund that needs to cover share redemptions.
d.
an investor who has received a margin call and needs to add cash to his margin account.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
24. Securities firms commonly engage in all of the following functions except
a.
proprietary trading.
b.
underwriting stock.
c.
operating mutual funds.
d.
providing brokerage services.
e.
operating credit unions.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
25. ____ are not included in flotation costs
a.
Issue costs
b.
Fees paid to the underwriters
c.
Taxes paid on income earned from the stock offering
d.
Registration expenses
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
26. Institutional investors that are willing to hold stock for only a very short period of time are prime candidates for
participating in a private placement
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
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27. Even after new stock is issued, a securities firm may continue to provide advice on the timing, amount, and terms of
future financing.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
28. Unlike the standardized provisions of a publicly placed issue, the provisions of a privately placed bond issue can be
tailored to the desires of the purchaser.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
29. The ____ offers insurance on cash and securities deposited at brokerage firms.
a.
Federal Reserve
b.
New York Stock Exchange
c.
Securities Investor Protection Corporation (SIPC)
d.
Securities and Exchange Commission (SEC)
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
30. Securities firms serve as an intermediary for each of the following, except
a.
stock offerings.
b.
debt offerings.
c.
IPOs.
d.
They serve as intermediary for all of the above.
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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Page 9
31. As a result of the Financial Services Modernization Act
a.
securities firms had to search for loopholes to expand into other types of financial services.
b.
firms that formed a special finance holding company were regulated by the SEC.
c.
banking, securities activities, and insurance services could be consolidated in a single financial institution.
d.
securities firms were prohibited from expanding into other types of financial services.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
32. One of the main functions of securities firms is helping corporations and governments raise funds.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
33. When securities firms facilitate initial public offerings, they attempt to price the stock high enough to satisfy the
issuing firm.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
34. The compensation paid to securities firms for helping a firm raise funds is typically in the form of interest income.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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35. The Securities and Exchange Commission’s approval of a registration statement guarantees the quality and safety of
the securities to be issued.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
36. One reason for the financial problems of securities firms during the credit crisis was that they used a high degree of
financial leverage.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
37. Securities firms engage in proprietary trading, which means that they serve as an intermediary by trading shares of
stock requested by proprietorships.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
38. The Financial Reform Act created the Financial Stability Oversight Council, which is responsible for identifying risks
to financial stability in the United States.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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39. During the credit crisis, many commercial banks were forced to convert to securities firms.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.24.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
40. During the credit crisis, some large securities firms were either acquired by commercial banks or converted into bank
holding companies.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
41. The Federal Reserve intervened to help securities firms during the credit crisis in order to reduce the potential adverse
effects of systemic risk.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
42. Securities firms avoided exposure to mortgages during the credit crisis because they sold their mortgage holdings
before the crisis began.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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Page 12
43. If securities firms are subject to systemic risk, this means that their main source of risk is a rise in interest rates, which
may cause the value of their bond holdings to decline.
a.
True
b.
False
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
44. When securities firms facilitate an IPO, they attempt to price the stock:
a.
at a level that will enable institutional investors who invest in the IPO to earn reasonable returns.
b.
high enough to satisfy the issuing firm.
c.
at a level that will enable the securities firms to place the entire issue.
d.
all of the above
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
45. Which of the following is not an example of a securities firm that experienced financial problems as a result of taking
on excessive risk when engaging in proprietary trading?
a.
Washington Mutual
b.
Société Générale
c.
Bear Stearns
d.
Barings Bank
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
46. Which of the following is not a way that a securities firm might advise a corporation to restructure its operations?
a.
a stock pass-through
b.
a spin-off of a unit
c.
a carve-out
d.
divestiture
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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Page 13
47. Many of the fees that securities firms charge for advising clients on a possible merger are typically dependent on
whether the merger takes place.
a.
True
b.
False
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.24.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
48. Which of the following does not play a role in regulating securities trading?
a.
Financial Industry Regulatory Authority
b.
Resolution Trust Corporation
c.
New York Stock Exchange
d.
Federal Reserve
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
49. The SEC’s Regulation Fair Disclosure (FD):
a.
requires firms to disclose any significant information to the SEC before making public announcements.
b.
requires firms to disclose any significant information to the Federal Reserve before releasing it to the public.
c.
requires firms to disclose any significant information simultaneously to all market participants.
d.
prohibits insiders at firms from trading on significant inside information.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.24.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
50. Securities firms that converted to bank holding companies during the credit crisis:
a.
gained more flexibility to obtain financing from the Federal Reserve.
b.
had to give up their traditional securities function of underwriting.
c.
came under greater regulatory oversight by the Securities Investor Protection Corporation.
d.
were prohibited from investing in or selling mortgage-backed securities.
ANSWER:
a
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