Part II Chapter 3

Question 1

ask price

Answer 1

The price or yield at which a dealer will sell a

security.

Question 2

bid price

Answer 2

The price or yield at which a dealer will purchase a

security.

Question 3

brokerage firms

Answer 3

Institutions/firms that specialize in the sale of
securities to institutional and retail customers by
executing the distribution, or selling, side of an
investment bank’s intermediation function.

Question 4

broker-dealer

Answer 4

A company or other organization that serves as
an intermediary in the purchase and sale of capital
market securities.

Question 5

captive finance company

Answer 5

A subsidiary of a large industrial corporation that

finances purchases of the corporation’s products.

Question 6

credit unions

Answer 6

Member-owned, not-for-profit financial cooperatives.
In the United States, they are chartered by either
federal or state agencies and originally were
intended to restrict membership to individuals with
a common affiliation (e.g., an employer, association,
community organization, or geographic location) but
may now include businesses as members.

Question 7

Demand Deposit Account (DDA)

Answer 7

An account through which an account holder uses a
bank to transfer funds to, and receive deposits from,
a third party.

Question 8

discount brokerage

Answer 8

A firm that lets investors make trades at reduced

prices, but provides little or no investment advice

Question 9

distribution

Answer 9

An investment bank function that involves a
securities sale to investors by an investment bank or
syndicate of investment banks.

Question 10

fiduciary

Answer 10

An individual or institution to which certain property
is given to hold in trust according to a trust
agreement.

Question 11

foreign currency account

Answer 11

A bank account where deposit balances may be held
in a currency other than that of the country in which
the bank is located.

Question 12

foreign exchange (FX)

Answer 12

The conversion of one country’s currency into that of

another.

Question 13

foreign market

Answer 13

A financial market in which contracts for future
delivery of currency or commodities are bought and
sold.

Question 14

industrial bank/industrial loan company

Answer 14

An FI with a limited scope of services. They sell
certificates that are labeled as investment shares
and can also accept customer deposits, then invest
the proceeds in installment loans for consumers and
small businesses.

Question 15

insurance company

Answer 15

A type of nonbank financial institution that sells

insurance products.

Question 16

investment bank

Answer 16

A financial intermediary that performs a variety of
services, such as: (1) underwriting, by acting as an
intermediary between an issuer of securities and the
investing public; (2) facilitating mergers, acquisitions,
divestitures, and other corporate reorganizations;
and (3) acting as a broker/financial advisor for
institutional clients.

Question 17

loan sales

Answer 17

An offering of commercial banks that involves the
structuring of lending facilities so that short-term
loans can be sold to other banks and investors.

Question 18

municipal securities

Answer 18

Types of debt (bonds or notes) issued by city,
county, or state government entities that generally
have some type of income tax exemption for any
interest paid on them.

Question 19

nonbank financial institution/

intermediary

Answer 19

A financial services firm that does not accept
deposits from the general public but may offer
a variety of financial services including leasing,
factoring, payment services, pension funds, mutual
funds, and insurance plans

Question 20

private placement

Answer 20

The practice of the direct sale of long-term loans to
institutional investors, such as insurance companies
and hedge funds.

Question 21

universal bank

Answer 21

A bank that offers both commercial and investment
banking services, with investment banking services
offered through the investment banking arm of a
commercial bank’s holding company.