1. Securities markets represent the financial marketplaces for stocks and bonds.
2. Securities markets provide private investors a place to buy and sell stocks, bonds, and
mutual funds.
3. An initial public offering (IPO) represents the first time a corporation’s stock is offered and
sold to persons outside of the company.
4. The proceeds from a secondary market sale of securities go to the corporation whose
security is being traded.
5. In a secondary market sale of stock, the proceeds go to the investor selling the stock, not
to the corporation.
6. Corporations sell a new issuance of securities in the Primary Market.
7. The primary market allows an investor to purchase financial securities from other
investors.
8. The secondary market is where investors (both individuals and companies) go to find
someone who is interested in selling their investments to them.
9. When given a choice, businesses prefer to obtain long-term financing through retained
earnings or by borrowing from a lending institution such as a bank.
10. Issuing stock is considered
equity
financing.
11. Issuing bonds is considered
debt
financing.
12. It is easier for a small business to raise funds through a stock issuance than for a large,
well-known company.
13. Before issuing stock or bonds, corporations must meet the disclosure requirements of the
Federal Trade Commission (FTC).
14. An investment banking firm assists corporations in selling the new security issue.
15. When investment bankers underwrite an issue, they buy at a discounted price the entire
stock issue of a firm and then sell the stock, at full price, to private investors.
16. Only government employees represent institutional investors.
17. Examples of institutional investors are pension funds, mutual funds, and insurance
companies.
18. Securities markets help companies raise long-term debt and equity financing.
19. Many observers suggest that the stock market is dominated by the buying and selling
activities of institutional investors.
20. Investment bankers assist in the issuing and selling of new securities.
21. Institutional investors include insurance companies, individual investors, and mutual
funds.
22. Corporations receive needed funds when they sell a new issuance of a security in the
primary market.
23. Investors who trade securities buy securities they are interested in holding or sell
securities to make a profit or cut losses by trading in the secondary market.
24. The Securities and Exchange Commission does not intercede in any way in the process of
an IPO. Doing so would disrupt the natural process of the capital markets.
25. Government employees, public school system employees, and even employees of some
large companies pay a percentage of their monthly earnings into pension funds. These funds
collect a large pool of money that they invest in securities. Pension funds, insurance companies
and mutual fund companies which collect large sums of money and then invest these funds into
stocks, bonds or other securities are called institutional investors.
26. Investment bankers are in the business of underwriting securities. They profit from
purchasing the new stock offering of a corporation at a discount, and then selling those shares of
stock to the public at the market price.
27. Your privately held firm needs additional funding for a planned expansion. Having never
issued stock to the public, your firm is well advised to seek the assistance of an investment
banker prior to an initial public offering of stock.
28. Hottie Potatee, Inc., wants to raise an undisclosed amount of funds in order to expand
the company-owned potato bar stores overseas. The CFO of the company will negotiate with an
expert at the FTC who will
underwrite
the issue of stock that Hottie Potatee plans to offer.
29. Ina Vestor inherited $75,000 when her grandfather died and decided to invest it in the
Hottie Potatee company. As a student of business, you inform her that she can call a stockbroker
who will help her purchase stock on the
secondary market
.
30. Sam Schiester, a stockbroker at Schemes Financial Services Company, called you the
other day asking if you would like to purchase an IPO. “The hot new company,
Hottie Potatee,
is
going public, and I thought you might want to get in on it,” he exclaimed. If you agree to buy
shares of this company, this trade will occur on the secondary market.
31. Idle Time Gaming, Inc., has reached the point where it needs several million dollars in
order to expand and become the international company that it says it wants to be in its strategic
plan. After consulting with an investment banker who is willing to
underwrite
the issue, it learned
that investors will purchase the stock for $22/share. Idle Time will receive a smaller amount for
each share that is sold.
32. If investor Jones buys a share of stock in the ABC Corporation from investor Smith, the
ABC Corporation automatically receives a fixed percentage of the selling price.
33. Stocks that are not listed as trading on one of the national or international stock
exchanges can be traded on the OTC, Over-The-Counter exchange.
34. A stock exchange provides a marketplace where the public can directly buy and sell
securities without the help of intermediaries.
35. Only those individuals and/or companies with a membership on a stock exchange can buy
and sell securities on that stock exchange.
36. Securities and Exchange Commission (SEC) rules prohibit the listing of the stock of
foreign firms on U.S. stock exchanges.
37. The over-the-counter market utilizes an electronic securities trading system.
38. The stock of companies that fail to meet a stock exchange’s minimum requirements can
be delisted.
39. The NASDAQ is a floor-based exchange.
40. Stock exchanges compete with each other for the listing of a corporation’s stock.
41. The Federal Trade Commission (FTC) regulates the security markets in the United States.
42. Before a corporation’s stock can be sold on a major stock exchange, the firm must provide
detailed financial information to the Securities and Exchange Commission.
43. Insider trading involves the sale of stock to employees at discounted prices.
44. The Securities and Exchange Commission requires that all prospective investors receive a
copy of a firm’s
prospectus
prior to investing.
45. Insider trading refers to someone who benefits unfairly from information about a security
not available to the general public.
46. Insider trading laws prevent employees from buying or selling the securities of their
employers.
47. Well-known foreign exchanges that also exchange the securities of U.S. firms include the
London Exchange and the Tokyo Exchange.
48. The number of U.S. companies that are listed on foreign stock exchanges is declining.
49. The
prospectus
is summarization of the results of detailed financial documents that a
firm files with the SEC prior to being given approval to issue securities.
50. Once a stock exchange agrees to list a company, the firm can be assured that it will
always be listed by that exchange.
51. With recent mergers of stock exchanges, beginning with the New York Stock Exchange
merger with Archipelago, and subsequently with Euronext and then Deutsche Borse, most
exchange floors are symbolic because trades usually take place via computers.
52. According to the
Spotlight on Small Business
box, the goal of the Jumpstart Our Business
Startups Act (JOBS Act) is to ease small business financing problems.
53. In an effort to profit from stock market trading, Chad landed a job with the ABC
Corporation. Chad intends to use his position to obtain privileged information about his new
employer that would not be available to the public. While Chad realizes that he may be benefiting
unfairly, as an employee he is not acting illegally.