Chapter 7

Question 1

Information Gathering Firms

Answer 1

Investment Banks = reduce adverse selection in primary securities markets by underwriting

Rating Agencies = research and rate default risk on bonds, available for free, sponsored by companies being rated

Question 2

Private Equity Firms

Answer 2

Private Equity Firm = financial institution that owns large shares in private companies (Takeover firms & Venture Capital)

Takeover Firm = private equity firm that buys entire companies and tries to increase companies’ profits

Venture Capital Firms = private equity firm that buys shares in new companies that plan to grow

Question 3

Sarbanes-Oxley Act

Answer 3

Sarbanes Oxley Act = federal legislation that strengthens requirements for information disclosure by corporations