Ch 11 Flashcards Preview

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Flashcards in Ch 11 Deck (46):
1

The primary market is a market in which securities are traded among investors

F

2

The issuer has almost no price risk in a firm commitment offering once the offer price is set

T

3

All public offerings are regulated by the Securities and Exchange Commission (SEC).

T

4

Under a best-effort agreement, investment bankers try to sell the securities of the issuing corporation, but
they assume no risk for a possible failure of the flotation.

T

5

Shelf registration allows firms to register only debt issues with the SEC, and have them available to sell for
two years.

F

6

All firms can use shelf registration which saves issuers both time and money

F

7

Private placement can avoid SEC registration and all SEC regulations.

F

8

Rights offerings among public corporations became infrequent in the United States during the 1980s and
1990s.

T

9

The flotation costs of an initial public offering are comprised solely of direct costs and the spread.

F

10

IPO underpricing occurs only in the United States

F

11

Firm commitment flotation costs, relative to the amount raised, are typically lower than those of best efforts

T

12

An important function of the Securities and Exchange Commission is to pass judgment on the investment
merit of a security

F

13

A dealer is a person who assists in the trading process by buying or selling securities in the market for an
investor.

F

14

The Glass-Steagall Act of 1933 ended the ability of commercial banks to act as underwriters of newly
issued securities.

T

15

The secondary markets provide pricing information and liquidity to investors

T

16

Floor brokers act as agents to execute customers’ orders for securities purchases and sales.

T

17

Designated Market Makers are dealers who have the responsibility of making a market in an assigned
security.

T

18

All securities must be listed before they may be traded on the New York Stock Exchange

T

19

A limit order is an order to sell stock at the market price when the price of the stock falls to a specified level

F

20

The maintenance margin is the minimum margin to which an investment may fall before a margin call is
placed

T

21

The fourth market is a market for large blocks of listed stocks that operate outside the confines of the
organized exchanges.

F

22

American depository receipts are receipts which represent foreign shares to U.S. investors

T

23

Insider trading regulation is provided for under the Securities Exchange Act of 1934.

T

24

A global depository receipt is traded on the American Stock Exchange.

F

25

The Dow-Jones Industrial Average is made up of 30 large blue-chip stocks

T

26

Commissions on stock trades are set by the stock exchanges

F

27

Existing securities are traded in the primary market.

F

28

The prospectus is a contract outlining the duties, responsibilities and fees between the issuing firm and its
underwriter.

F

29

Underpricing represents the difference between the aftermarket price and the offering price

T

30

If there were no secondary markets for trading between investors, there would be no primary market for the
initial sale of securities.

T

31

The term “Big Board” is another name for the NASDAQ market

F

32

A market order is an order for immediate purchase or sale at the best possible price

T

33

An odd lot is a trade involving 100 shares or multiples of 100 shares.

F

34

Over the counter markets are organized exchanges for trading securities such as the New York Stock
Exchange

F

35

ADRs are created and traded in dollars on U.S. exchanges. They represent a given number of shares of a
foreign firm’s stock .

T

36

Churning happens when a broker constantly buys and sells securities from a client’s portfolio in an effort to
generate commissions.

T

37

In a financial context, due diligence refers to the detailed study of a corporation

T

38

An underwriting agreement is a contract in which the investment banker agrees to buy securities at a
predetermined price and then resell them to investors

T

39

An underwriting agreement is a contract in which the investment banker agrees to do its best to sell
securities to investors at the highest price it can; the investment banker assumes no risk for the possibility that it
may fail to issue all authorized shares.

F

40

A pre-emptive right refers to the right of existing shareholders to sue management in order to head off
potential actions by management that would adversely affect the price of the stock.

F

41

A Dutch auction is an offering process in which investors bid on the price and quantity of securities they
wish to purchase

T

42

A syndicate is a group of several investment banking firms that participate in underwriting and distributing a
security issue.

T

43

The aftermarket is a period of time after an IPO.

T

44

Federal regulation of investment banking is administered primarily under the provisions of the Investment
Banking Monitoring and Control Act of 1999

F

45

Organized securities exchanges include the New York Stock Exchange, the American Stock Exchange, and
NASDAQ.

F

46

New York Stock Exchange is an example of a primary market.

F