BMOS Final Questions (Based off online quizzes 6-9)
The Canadian term for a merger process is called a(n):
Amalgamation
Futures contracts were first traded on:
commodities.
When an American says the Euro is $1.35 US this is
a Direct Quotation
What is an Offering Memorandum?
a document describing a target firms important characteristics to potential acquirers
What is a Forward Contract?
a price that is established today for future delivery.
What is a future contract?
a standardized transferable agreement providing for the deferred delivery of a specified traded quantity of a commodity
What are characteristics of an acquisition?
- Control has transferred from one entity to another - often completed via cash transactions - The acquiring corporation retains its identity
What impacts the market value of a call option?
- The time to maturity - Interest rate changes - The price of the underlying security
Tactics that venture capitalists use to reduce the risk of their investment include:
- funding the ventures in stages - requiring entrepreneurs to make personal investments - syndicating investments - maintaining in-depth knowledge about the industry
How long (usually) is the boot-strapping period?
1-2 years
The three principal ways in which venture capital firms exit venture-backed companies are:
1. selling to a strategic buyer 2. selling to a financial buyer 3. offering stock to the public
The STANDARD option contract on an organized exchange is written on:
100 shares of stock.
The major participants in the foreign exchange markets are:
multinational commercial banks large investment banking firms small currency boutiques
The initial margin required for futures trading:
must be put up by both the buyer and the seller.
The three intermediation channels that transfer money from lenders to borrowers are:
non-market transactions, market intermediation, and financial intermediation
In options trading, what is a short position?
position taken by the person who sells an option.
What is a horizontal merger?
A company acquires an organization similar to itself
A fairness opinion is used most often when:
A controlling shareholder seeks approval for an amalgamation.
What action could by itself have an impact on the control of the firm?
A tender offer stock repurchase
Which of the following does not meet the definition of a financial intermediary? (B/w Insurance companies, Pension funds, Brokers, Chartered Banks)
Brokers
Another name for the premium of the option is:
price paid by the option buyer to the writer of the option.
An example of a non-marketable financial asset is a:
Demand deposit
Present value is based on the concept of:
Discounting
Markets that have prices adjusting quickly to new information to reflect the impact of that information on the security is known as
Efficient
The main difference between exchanges and dealer/OTC markets is:
Exchanges have a physical location while dealer and OTC markets do not.
Consider a company that had unexpectedly higher earnings last quarter and intends to pay out some additional value to shareholders. Which type of dividend is the company likely to use?
Extra dividend
The holder of a bond is another term used for the company borrowing the funds (T or F)
False
An option buyer has two courses of action available: exercise the option or let it expire (T or F)
False.
Most businesses are started when an entrepreneur is given a vision for a new business or product by institutional investors (T or F)
False.
The initial seed money usually comes from venture capitalists (T or F)
False.
To convert the projects future cash flows into another currency, we need to use todays spot exchange rates (T or F)
False.
Entities that invest funds on behalf of others and change the nature of the transactions are called:
Financial Intermediaries
What is the key idea behind staged funding?
that each funding stage gives the venture capitalist an opportunity to reassess the management team and the firm's financial performance
What is the strike price of an option?
the price at which an investor can buy the underlying asset.
What is a call option?
the right to buy an underlying asset at a fixed price for a specified time
Most investors exhibit risk averse behavior which means:
they will not assume more risk unless they are compensated by higher expected returns.
Which type of dividend is used to distribute any remaining value when the company's assets are being sold as the company is terminated?
Liquidating Dividend
Do the basic principles of finance differ from country to country?
No, the principles are the same world wide.
Does paying a stock dividend transfer value to the companys stockholders?
No.
The market in which new securities are issued by borrowers in return for cash from investors is called the __________.
Primary market
Securities legislation is a(n):
Provincial responsibility
What's an Option Contract?
Securities that give the holder the right, but not the obligation, to buy or sell a stated number of shares of stock within a specified period at a specified price
Although Canadian banks are involved in almost all areas of the financial system, which of the following is their core activity?
Taking deposits & lending funds
Which type of stock repurchase often takes place at a price below the current market price of the stock?
Targeted stock repurchases
A market where transactions are made directly between large institutions and wealthy individuals that bypass brokers and dealers is an example of
The 4th market
In terms of shareholder approval requirements, the main difference between a cash transaction and a share transaction is:
The approval of both sets of shareholders is often required for a share transaction.
What is Due Diligence?
The process of evaluating a target company in a friendly takeover
A large amount of trading after a hostile tender offer is made is a good sign for the acquirer because:
The shares are moving between regular investors and arbitrageurs.
Which essential function do speculators bring to the futures markets?
They absorb any excess supply or demand generated by hedgers.
A put option with a strike price of $20 is expiring today. The stock is currently selling at $25. Based on this information, the put option should not be exercised (T or F)
True.
Commercial paper is a short term unsecured promissory note issued by a high credit-quality corporation. (T of F)
True.
Dividends reduce the stockholders investment in the firm (T or F)
True.
Futures are essentially standardized forward contracts (T or F)
True.
It is usually good news for shareholders when their firm is targeted (T or F)
True.
Managers may abuse their position and increase the size of the company through acquisitions (T of F)
True.
Stock prices drop on the ex-dividend date, but usually the drop is less than the amount of the dividend (T or F)
True.
The options clearing corporation ensures fulfillment of option obligations (T or F)
True.
The record date should never come before the ex-dividend date (T or F)
True.
The writer of a call is bearish about the stock price (T or F)
True.
There is direct relationship between the price of a call option and the volatility of the underlying common stock (T or F)
True.
What is the defensive tactic known as a "poison pill"?
When the takeover target issues rights to purchase 50% more shares to non-acquiring company shareholders
Is it necessary to have financial markets for a financial system to operate efficiently?
Yes
The primary goal of the financial manager in a profit-seeking organization is to....
maximize the owners wealth.
Underlying the evaluation of an investment is the trade-off between
expected return and risk
Spot markets are used by investors:
for immediate delivery
Investors purchase call options when they expect the price of the underlying stock to:
increase.
The small deposit made with the clearing house is called the:
initial margin.
In the futures market, the initial margin is:
is a good faith deposit made by both long and short positions to ensure the completion of the contract.
In Europe, management's goals focus on
maximizing corporate wealth