Vol.1 Chapter 1

Question 1

Private placements [small]

Answer 1

Private way to issue [sell] securities to small number of investors
(not public investors)
Not regulated by the SEC

Question 2

Negative covenant [agreement]

Answer 2

restricts certain actions of the issuer

Question 3

Positive covenants

Answer 3

requires certain standard, such as providing periodic reports

Question 4

Financial covenants

Answer 4

requires financial variables

Question 5

Maintenance covenants

Answer 5

The financial requirements must be met periodically

Question 6

Incurrence covenants

Answer 6

The requirements must be met when the event occurs [deadline]

Question 7

Public Offerings;

Answer 7

public way to issue [sell] securities to public investors

Regulated by SEC

Question 8

Investment Banker

Answer 8

firm that trade stocks and bonds to the public, underwrite IPO

Question 9

Merchant Bank

Answer 9

investment bank that not only invest its own capital, but also raise capital from the public

Question 10

Best efforts;

Answer 10

investment banker [intermediary] only sells new securities for the issuer that are presold to investors
(for small or new companies)

Question 11

Firm Underwritings;

Answer 11

investment banker monitors market conditions and the demand for the newly issued stock

· Risker than a best efforts offering because the banker will have to buys the entire issue and reselling it to the public at

Question 12

Fixed Price;

Answer 12

investment banker sets a price and then solicits subscriptions from investors

Question 13

Bookbuild underwritings;

Answer 13

investment banker preliminary offering documents and specifics a price range rather than a single price

Question 14

Direct Public Offering;

Answer 14

an offering of new equity directly to the public without the aid of an investment banker.

Question 15

Right offerings;

Answer 15

an offering made directly to a firm’s current shareholders, giving them the right to purchase new securities are a discounted price

Question 16

Auctions

Answer 16

Used to sell equities, especially fixed-income securities

There are no underwriters, there is no spread. Instead, brokers charge commissions

Question 17

Syndicate;

Answer 17

group of investment bankers, underwrites most large offerings

Question 18

Lead underwriter

Answer 18

an investment banker with primary responsibility for a new securities offering often as head of a syndicate.

Question 19

“leaving money on the table”

Answer 19

funds foregone by a firm that has an IPO that is substantially underpriced so that there is a large first day return.

Question 20

road show

Answer 20

an organized series of presentations in various cities in which a firm’s officers and investment bankers meet potential investors.

Question 21

Greenshoe option;

Answer 21

Underwriter gives an investment banker the right to buy additional shares from a firm typically for 30day period after offering day

Question 22

Shorting selling

Answer 22

the sale of an asset not owned, typically in hopes of profiting from a price decline

Question 23

Special

Answer 23

a stock that is difficult to borrow.

Question 24

Naked short

Answer 24

short sale made without any intention of borrowing stock deliver

Question 25

Short sale against the box;

Answer 25

the short sale of a security that the seller owns, but that is not available for immediate delivery

Question 26

dutch auctions

Answer 26

a type of auction for new securities in which

bidders indicate the price and quantity they are willing to buy at that price,

Question 27

specialness

Answer 27

the difference between the typical rebate rate and the rebate rate on a given loan.

Question 28

special types of short sales

Answer 28

naked short

Short sale against the box

Question 29

syndicate manager

Answer 29

the firm that originates the deal for a new issue and is in direct contact with the issuer.