Ch 11 Flashcards
The primary market is a market in which securities are traded among investors
F
The issuer has almost no price risk in a firm commitment offering once the offer price is set
T
All public offerings are regulated by the Securities and Exchange Commission (SEC).
T
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
Shelf registration allows firms to register only debt issues with the SEC, and have them available to sell for
two years.
F
All firms can use shelf registration which saves issuers both time and money
F
Private placement can avoid SEC registration and all SEC regulations.
F
Rights offerings among public corporations became infrequent in the United States during the 1980s and
1990s.
T
The flotation costs of an initial public offering are comprised solely of direct costs and the spread.
F
IPO underpricing occurs only in the United States
F
Firm commitment flotation costs, relative to the amount raised, are typically lower than those of best efforts
T
An important function of the Securities and Exchange Commission is to pass judgment on the investment
merit of a security
F
A dealer is a person who assists in the trading process by buying or selling securities in the market for an
investor.
F
The Glass-Steagall Act of 1933 ended the ability of commercial banks to act as underwriters of newly
issued securities.
T
The secondary markets provide pricing information and liquidity to investors
T
Floor brokers act as agents to execute customers’ orders for securities purchases and sales.
T
Designated Market Makers are dealers who have the responsibility of making a market in an assigned
security.
T
All securities must be listed before they may be traded on the New York Stock Exchange
T
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
The maintenance margin is the minimum margin to which an investment may fall before a margin call is
placed
T
The fourth market is a market for large blocks of listed stocks that operate outside the confines of the
organized exchanges.
F
American depository receipts are receipts which represent foreign shares to U.S. investors
T
Insider trading regulation is provided for under the Securities Exchange Act of 1934.
T
A global depository receipt is traded on the American Stock Exchange.
F
The Dow-Jones Industrial Average is made up of 30 large blue-chip stocks
T
Commissions on stock trades are set by the stock exchanges
F
Existing securities are traded in the primary market.
F
The prospectus is a contract outlining the duties, responsibilities and fees between the issuing firm and its
underwriter.
F
Underpricing represents the difference between the aftermarket price and the offering price
T
If there were no secondary markets for trading between investors, there would be no primary market for the
initial sale of securities.
T
The term “Big Board” is another name for the NASDAQ market
F
A market order is an order for immediate purchase or sale at the best possible price
T
An odd lot is a trade involving 100 shares or multiples of 100 shares.
F
Over the counter markets are organized exchanges for trading securities such as the New York Stock
Exchange
F
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
Churning happens when a broker constantly buys and sells securities from a client’s portfolio in an effort to
generate commissions.
T
In a financial context, due diligence refers to the detailed study of a corporation
T
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
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
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
A Dutch auction is an offering process in which investors bid on the price and quantity of securities they
wish to purchase
T
A syndicate is a group of several investment banking firms that participate in underwriting and distributing a
security issue.
T
The aftermarket is a period of time after an IPO.
T
Federal regulation of investment banking is administered primarily under the provisions of the Investment
Banking Monitoring and Control Act of 1999
F
Organized securities exchanges include the New York Stock Exchange, the American Stock Exchange, and
NASDAQ.
F
New York Stock Exchange is an example of a primary market.
F
