FIN 460 Ch 16

The major cause of the interindustry mergers among financial services firms during the 2000s is the

Financial Services Modernization Act of 1999.

______ of the top five underwriters of global debt are U.S. firms.

Four

With ______ underwriting, investment bankers act as agents on a fee basis related to their success in placing the issue with investors.

best efforts

A large proportion of a market maker's profit on agency transactions is the ______, which is the difference between the price they pay for a security, and what they sell it for.

bid-ask spread

The largest firms in the industry today provide diversified financial services, acting as ______ to retail customers, and as ______ to corporate customers.

broker-dealers; securities underwriters

The general term for securities trading at the retail level on behalf of customers is

brokerage.

Securities firms and investment banks play the role of ______ intermediating between fund suppliers and users.

brokers

The advantage of brokerage firm cash management accounts over commercial bank deposit accounts is that they make it easier to

buy and sell securities.

Investing involves managing pools of assets such as ______ and ______ in competition with commercial banks, life insurance companies and pension funds.

closed-end mutual funds; open-end mutual funds

The largest of the large full-service firms, having extensive domestic and international operations offering a wide variety of retail and corporate financial services, are the

commercial bank holding companies or financial services holding companies.

The period 1990-2001 saw an increase in new issue underwriting activity, particularly underwriting of

corporate bond issues.

States continue to exert regulatory influence over securities firms through ______ brought against securities violators by the state ______.

criminal investigations; attorneys general

Between 1987 and 2006, the number of firms in the investment banking and securities industry ______ in number and ______ in business concentration.

decreased; increased

Trading that involves direct access via the internet to the trading floor, bypassing traditional brokers, is called

electronic brokerage.

Because of the emphasis on securities trading and underwriting rather than longer-term investment in securities, the size of the industry is usually measured by the ______ of the firms in the industry rather than by their ______.

equity capital; asset size

Venture capital is usually provided to a firm in exchange for a(n)

equity investment.

In addition to using the pooled investment resources of institutions and wealthy investors for funding like venture capital firms, private equity firms may also use ______ and ______ to fund their investments.

equity securities; non-publicly traded stocks

A major distinction between venture capital firms and commercial banks is that venture capital firms invest in new and unproven firms, while commercial banks prefer to invest in ______ and ______ firms.

existing; financially secure

With ______ underwriting, the investment bank acts as a principal, purchasing the securities from the issuer at one price and seeking to place them with the public at a slightly higher price.

firm commitment

Venture capital firms look for two things in making their decisions to invest in a firm: ______ and ______.

high return; easy exit

FINRA is a(n) ______ and ______ organization authorized by Congress to protect America's investors.

independent; nonprofit

The activities related to underwriting and distributing new issues of debt and equity securities is referred to as

investment banking.

In addition to being primary dealers in government securities and underwriters of corporate bonds and equities, _____ make a secondary market in these securities.

investment banks

Large full-line firms that provide both securities underwriting and brokerage services are called

investment banks.

The major market makers in the derivatives securities markets are

investment banks.

Securities firms hold ______ equity capital than commercial banks.

less

One reason why securities firms hold less equity capital than commercial banks is that their balance sheet is dominated by ______ assets.

liquid

Position traders make take ______ or ______ positions that last for many weeks or months.

long; short

In addition to a wide variety of other regulatory activities, FINRA performs market regulation under contract to

major U.S. stock exchanges.

The balance sheet of the investment banking and securities firm industry tends to hold a large percentage of financial assets, subjecting the industry to large levels of ______ risk and ______ risk.

market; interest rate

While venture capital firms concern themselves with investing in ______, private equity firms tend to focus more on ______.

new firms; established firms

Trading that involves purchasing large blocks of securities on the expectation of a favorable price move is called

position trading.

A transaction in which the market maker seeks to profit on the price movements of securities and takes either long or short positions for its own account is called a(n)

principal transaction.

The simultaneous buying and selling of a portfolio of at least 15 different stocks valued at more than $1 million using computer programs is called

program trading.

Trading that entails buying an asset in one market at one price and selling it immediately in another market at a higher price is called

pure arbitrage.

Trading that involves buying securities in anticipation of some information release that will be beneficial to the investor's position is called

risk arbitrage.

Firms that specialize in the purchase, sale and brokerage of existing securities in a retail capacity are called

securities firms.

The largest single source of funds on the securities firm balance sheet in 2016 was

securities sold under repurchase agreements.

In 2019, ______ of the top ten advisors in merger and acquisition deals involving U.S. targets were U.S. investment banks.

seven

One important difference between securities firms and other financial institutions is that securities firms tend to use liabilities that are very

short-term.

Since securities firms tend to trade for their customers and do not take positions for themselves, their assets and liabilities tend to be mostly

short-term.

At the core of the LIBOR scandal were ______ global investment banks that conspired to manipulate the ______ rate to their advantage.

six; Yen LIBOR

Traditional bank service areas into which investment banks are making increasing inroads are ______ and ______.

small business lending; trading of loans

The portion of an investment bank's fee or commission that is allocated to research and advisory services is called

soft dollars.

Funds management generates fees that are based on the size of the pool of assets managed, and tends to produce a more ______ than does either investment banking or trading.

stable flow of income

The trading of securities on behalf of individuals who want to transact in the money or capital markets is called

stock brokerage.

Brokerage commission income is tied to

stock market trading volume.

Performance trends in the investment banking and securities firm industry depend heavily on the state of the

stock market.

Issuers of privately placed securities are not required to register with ______ since the placements are made only to large, sophisticated investors.

the SEC

In 2019, the total dollar value of mergers and acquisitions completed in the U.S. was about ______ and the total dollar value of mergers and acquisitions completed globally was just over ______.

$1.8 trillion; $3 trillion

Between 1990 and 2000, the total dollar volume of domestic mergers and acquisitions increased from less than ______ to about ______.

$200 billion; $1.8 trillion

The investment banking industry suffered a decline in bond and equity underwriting during the 1987-1990 period that was due to (pick three)

1. a decline in mergers and acquisitions. 2. investor concern about the failing junk bond market. 3. the 1987 stock market crash.

Investment banking also includes corporate finance activities such as advising on (pick two)

1. corporate restructuring. 2. mergers and acquisitions.

The three types of private sector institutional venture capital firms are

1. limited partner venture capital firms. 2. financial venture capital firms. 3. corporate venture capital firms.

The largest firms in the industry today can be divided into three subgroups, which are

1. national full service firms specializing in corporate finance and primary market activities 2. large investment banks located in major cities specializing in institutional clients 3. commercial bank holding companies or financial services holding companies

Although the investment banking and securities firm industry suffered record losses in 2008, they recovered quickly, showing record pretax profits as early as

2009.

Cash management accounts offered by investment banks and securities firms may be covered directly or indirectly by

FDIC insurance.

True or false: As the result of the LIBOR scandal, fines were levied but no one went to prison.

False

The 2010 Wall Street Reform and Consumer Protection Act gave new authority for the ______ to supervise all firms that could pose a threat to financial stability.

Federal Reserve

______ other sectors of the financial institutions industry, securities firms and investment banks operate globally.

More than

In 1996, the ______ reaffirmed the SEC as the primary regulator of securities firms and greatly reduced the ability of states to regulate the industry.

National Securities Markets Improvement Act

The 2010 Wall Street Reform and Consumer Protection Act also mandated that ______ be moved to listed futures markets and cleared through a registered clearing organization or exchange.

OTC derivatives trading

The ______ protects investors against losses of up to $500,000 securities firm failures.

Securities Investor Protection Corporation (SIPC)

The ______ restores investors' cash and securities left in the hands of bankrupt or otherwise financially troubled firms, but it does not insure against poor investment choices.

Securities Investor Protection Corporation (SIPC)

The federal government, through the Small Business Administration, operates privately organized venture capital firms that provide capital to entrepreneurs called

Small Business Investment Companies.

The day-to-day regulation of trading practices in the securities industry is performed by

The Financial Industry Regulatory Authority (FINRA)

The primary regulator of the securities industry is the

The Securities and Exchange Commission (SEC)

True or false: Among other services provided in the area of mergers and acquisitions, investment banks may assist target firms in preventing the merger altogether.

True

True or false: During the financial crisis, investment banks and securities firms suffered their largest losses in their trading and investment account revenue lines.

True

True or false: Securities trading and underwriting is a financial service that requires little investment in assets or liabilities funding.

True

In 2010, in response to the recent financial crisis, the ______ focused on the contributing role of investment banks in the financial crisis.

U.S. Senate Permanent Subcommittee on Investigations

An investment bank engaged in securities underwriting will often bring in other investment banks to help sell and distribute the new issue. This is called

a syndicate.

Venture capitalists are not passive investors. In addition to their equity investment, they also provide ______ and ______.

advice; assistance with recruiting managers

A two-way transaction made on behalf of a customer, for which the financial institution receives a fee or commission is called a(n)

agency transaction.

Securities firms and investment banks act as market makers in financial securities, through either ______ transactions or ______ transactions.

agency; principal

Wealthy individuals who make equity investments in small startup firms are called

angel venture capitalists.