1. Investment banks specialize in the origination, underwriting, and distribution of securities issues.
2. Investment banks engage in activities such as advising on mergers, acquisitions, and corporate restructuring.
3. Securities trading and underwriting is a profit generating activity that requires FIs to hold an inventory of
securities they trade.
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.
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.
6. The Financial Services Modernization Act of 1999 and other regulatory changes have been the cause of the
increase in interindustry mergers of investment banks and securities firms.
7. The number of investment banks and securities firms expanded rapidly from 1980 to October 1987.
8. As of October 1987, there were over 9,500 securities firms and investment banks.
9. As of the first half of 2009, income generated by securities brokerage accounted for over 65% of commercial
bank holding company fee income.
10. As of the first half of 2009, there were over 5,900 securities firms in operation.
11. National full-line investment banks and securities firms provide business services to both retail and
corporate customers.
12. The objective of funds management is to allocate assets so that they outperform relative risk-return
tradeoffs.
13. Because the business of funds management generates fees based on the size of the pool of assets managed,
the flow of income is larger than either investment banking function or the trading function.
14. In a public offering, an investment banker places new issues of securities with a handful of private, usually
large, investors.
15. Initial public offerings (IPOs) are first-time issues of firms whose equity has not previously traded in an
organized market.
16. 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.
17. A best-efforts offering of a security is more risky for an investment bank than a firm commitment offering.
18. Brokerage commissions for securities firms decreased after fixed commissions on trades were abandoned by
the SEC in May 1975.
19. Market making involves creating a primary market in a financial asset.
20. Market makers in a stock are obliged to buy shares from sellers when the market for the stock is declining.
21. Agency transactions of market makers are two-way transactions on behalf of customers.
22. Principal transactions allow the market maker to always make a profit whether or not the market price for a
specific stock is rising or falling.
23. Decimalization involves making quotes in the equities markets in units of 1 cent ($0.01) rather than in units
of one-eights of a dollar ($0.125).
24. The change to decimalization of stock market transactions has lead to an increase in income from the market
making activity of investment banks and securities firms.
25. 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.
26. Cash management accounts were an early attempt by commercial banks to provide investment banking
services.
27. Cash management accounts did not exist before 1999.
28. 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.
29. Activity and performance trends in the investment banking industry are highly correlated with general
economic expansions and recessions.
30. 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.
31. The largest source of funding for securities services firms and investment banks is broker-call loans from
commercial banks.
32. The goal of the Sarbanes-Oxley Act is to prevent deceptive accounting and management practices and thus
to increase confidence in corporate governance.
34. Seeking international partners is a recent trend among securities firms and investment banks.
35. Investment banks and securities firms are less internationally involved than other domestic financial service
industries.
36. Securities firms and investment banks are more involved internationally than other member of the financial
services industries.
37. By mid-year 2009, there were approximately ________ securities firms and investment banks operating.
38. The most common benchmark of relative size of a firm in the securities trading and underwriting industry is
based on
39. Which of the following differentiates securities firms from investment banks?
40. Which of the following would be a key area of activity for an investment bank specializing in the
commercial side of the business?
41. Which of the following is true?
42. Discount brokers
43. Which of the following is most typical of broker-dealers?
44. Which of the following is true of private placements?
45. In market-making
46. In market-making
47. What term refers to the process in which an IPO share allocation is used for the purpose of enticing future
investment banking business from customers?
48. Which of the following is NOT considered a trading activity of securities firms?
49. Pure arbitrage trading involves
50. The largest category of assets for broker-dealers as of the beginning of 2009 was
51. The largest category of liabilities of broker-dealers as of the beginning of 2009 was
52. In comparison to a typical commercial bank, an investment bank is likely to have
53. National full-line firms
54. The management of pools of assets by securities firms is considered to be the function of
55. Creating a secondary market in an asset by a securities firm involves the function of
56. Participation in the activities relating to the underwriting and distribution of new issues of debt and equity
by a securities firm involves the function of
57. Offering bank deposit-like accounts to individual customers by a securities firm involves
58. The primary advantage to the investor of a brokerage firm cash management account (CMA) over
commercial bank deposit accounts is that
59. The process of providing custody and escrow services, clearance and settlement services, and research and
other advisory services by a securities firm involves the function of
60. Which of the following is NOT a back-office service function in the securities industry?