TEST BANK
CAPITAL MARKETS: INSTITUTIONS AND INSTRUMENTS
FABOZZI/MODIGLIANI
Chapter 6
INVESTMENT BANKING FIRMS
MULTIPLE CHOICE
1. Investment banking firms are highly leveraged companies which means that:
[M]
2. The revenues generated by investment banking firms come from:
[E]
3. The traditional process in the U.S. for issuing new securities involves investment
bankers, which perform which of the following functions?
[E]
4. When an investment banking firm buys the securities from the issuer and accepts the risk
of selling the securities to investors at a lower price, the arrangement is referred to as:
5. The difference between the price paid to the issuer and the price at which the investment
bank reoffers the security to the public is called:
[M]
6. An investment banking firm will typically put together a group of firms in order to:
[M]
7. In a firm commitment underwriting arrangement, the risk that the investment banking
firm accepts is:
[M]
8. When an investment banker puts together a selling group, the gross spread is divided
among:
[E]
9. Whenever investment bankers assist in offering the securities of government-owned
companies to private investors, this process is referred to as:
10. To protect against a loss, investment banks engage in:
[E]
11. Traders employ strategies to generate revenues from positions in one or more securities
including:
[E]
12. When a trader positions the capital of the investment banking firm to take advantage of a
specific anticipated movement of prices or a spread between two prices, this strategy is
referred to as:
[M]
13. Risk arbitrage to lock in a spread, if the exchange is consummated on the announced
terms, involves:
[D]
14. Private placement of securities involves:
15. A firm, which is acquired using mostly debt funds and taken private, is participating in
a(n):
[M]
16. When an investment banking firm commits its own funds by either taking an equity
interest or creditor position in companies, this activity is referred to as:
[M]
17. Dealer-created derivative instruments protect investment banking firms against:
[M]
18. When an investment banker works with a corporation to issue an asset-backed security it
generates revenue from the:
[M]
19. Investment banking activities are performed by:
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20. Investment banking firms are engaged in which of the following activities?
TRUE/FALSE
1. Investment bankers act as brokers and dealers in the buying and selling of securities.
[E]
2. When the investment banking firm agrees to buy the securities from the issuer at a set
price, the underwriting arrangement is referred to as underwriting.
[M]
3. Riskless arbitrage calls for a trader to find a security or package of securities trading at
different prices.
[M]
4. Institutional investors include insurance companies, investment companies, and pension
funds.
[E]
5. Investment banking firms have created subsidiaries that manage funds for either
individual or institutional investors.
ESSAY QUESTIONS
1. Explain the different types of underwriting arrangements.
Key Issues:
2. Explain the differences and similarities between riskless arbitrage and risk arbitrage.
How does it differ from speculation?
Key Issues:
3. Discuss the various roles investment banking firms play in mergers and acquisitions.
Key Issues: