FINA 365 Final Ch. 1 - 5

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a firm commitment basis. The investment banker pays $31.50 per share to NetChoice, Inc. for the 5 million shares of stock. It then sells those shares to the public for $30.00 per share If the investment bank can sell the shares for $34 per share, what is the profit (loss) to the investment banker? A. Profit of $12,500,000. B. Profit of $10,000,000. C. Profit of $7,000,000. D. Loss of $7,500,000. E. Loss of $12,500,000.

A. At $34 per share, the investment bank makes a profit of $12,500,000. ($34.00 - $31.50) × 5,000,000 = $2.50 per share × 5,000,000 shares = $12,500,000

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a best-efforts basis. The investment banker is able to sell 4.5 million shares for $31.00 per share and it charges NetChoice, Inc. $0.375 per share sold. What is the profit to the investment banker it sells 4.5 million shares for $29 per share? A. Profit of $1,687,500. B. Loss of $2,487,500. C. Profit of $1,875,000. D. Loss of $3,125,000. E. Profit of $3,125,500.

A. At a price of $29.00, the profit to the investment banker is unchanged since the compensation relies only on the number of shares sold. $0.375 per share × 4,500,000 = $1,387,500

An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share. How much money does TWResearch receive? A. $105,000,000. B. $150,000,000. C. $112,000,000. D. $125,000,000. E. $110,000,000.

A. $105,000,000. TWResearch, Inc. will receive $10.50 per share × 10,000,000 shares = $105,000,000

An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share. If the investment bank can sell the shares for $9.75 per share, how much money does TWResearch receive? A. $105,000,000. B. $150,000,000. C. $112,000,000. D. $125,000,000. E. $110,000,000.

A. $105,000,000. This is a firm commitment offering, so TWResearch still receives $105,000,000 $10.50 per share × 10,000,000 shares

An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share. How much money does TWResearch receive? A. $105,000,000. B. $150,000,000. C. $112,000,000. D. $125,000,000. E. $110,000,000. TWResearch, Inc. will receive $10.50 per share × 10,000,000 shares = $105,000,000

A. $105,000,000. TWResearch, Inc. will receive $10.50 per share × 10,000,000 shares = $105,000,000

An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share. If the investment bank can sell the shares for $9.75 per share, how much money does TWResearch receive? A. $105,000,000. B. $150,000,000. C. $112,000,000. D. $125,000,000. E. $110,000,000.

A. $105,000,000. This is a firm commitment offering, so TWResearch still receives $105,000,000 $10.50 per share × 10,000,000 shares

During 2006, originations of new subprime mortgages totaled approximately __________, which was ________ of new mortgages originated that year. A. $600 billion; one-fifth B. $400 billion; one-tenth C. $100 billion; one-half D. $400 billion; one-third E. $600 billion; one-half

A. $600 billion; one-fifth

The front-end load on these type of shares is charged on new sales and is not generally incurred when these shares are exchanged for another mutual fund within the same fund family. A. Class A shares. B. Class B shares. C. Class C shares. D. Class D shares. E. Either Class A or Class C shares.

A. Class A shares.

Which of the following is NOT a back-office service function in the securities industry? A. Correspondent banking services. B. Escrow services. C. Clearance of securities transactions. D. Research services. E. Services related to settlement of securities transactions.

A. Correspondent banking services.

Which of the following hedge fund objectives would be classified under the "moderate risk" category? A. Distressed securities funds. B. Market neutral-arbitrage funds. C. Value funds. D. Short selling funds. E. Market timing funds.

A. Distressed securities funds.

An investment banker agrees to underwrite an issue of 10 million shares of stock for Rochester Industries on a best-efforts basis. The investment banker is able to sell 8 million shares for $10.50 per share, and it charges Rochester Industries $0.225 per share sold If the investment bank sells 8 million shares for $9.75 per share, how much money does Rochester Industries receive? A. $76,200,000. B. $84,000,000. C. $105,000,000. D. $82,200,000. E. $78,000,000.

A. $76,200,000. At a price of $9.75, Rochester Industries receives $76,200,000 ($9.75 - 0.225) × 8,000,000 = $9.525 per share × 8,000,000 shares = $76,200,000

By late 2012, the number of branches of existing commercial banks in the U.S. approximated ________, which was a(an) _________ from 1985. A. 83,000; increase B. 43,000; increase C. 68,000; decrease D. 103,000; decrease E. 72,000; increase

A. 83,000; increase

Which function of an FI reduces transaction and information costs between a corporation and individual which may encourage a higher rate of savings? A. Brokerage services. B. Asset transformation services. C. Information production services. D. Money supply management. E. Administration of the payments mechanism.

A. Brokerage services

For mutual funds outside the United States, total amounts invested in this fund category topped the list in 2012. A. Equity funds. B. Bond funds. C. Hybrid funds. D. Money market funds. E. Hedge funds.

A. Equity funds.

Which of the following currently manages the insurance funds for both commercial banks and savings institutions? A. FDIC. B. FSLIC. C. OCC. D. FRS. E. State authorities.

A. FDIC.

What distinguishes financial intermediaries from industrial firms? A. FI balance sheets are almost totally comprised of financial assets while commercial firms hold substantial amounts of real assets. B. Industrial firms are the customers of FIs, but FIs cannot be customers of industrial firms. C. FIs deal exclusively in primary securities, but industrial firms specialize in secondary securities. D. Industrial firms produce real goods or services while FIs only produce money. E. Industrial firms are unregulated while FIs are heavily regulated.

A. FI balance sheets are almost totally comprised of financial assets while commercial firms hold substantial amounts of real assets.

As of 2012, which of the following is true concerning payday lending? A. The typical borrower earns less than $25,000. B. Payday lending has been effectively banned in 18 states. C. Interest rate on payday loans were capped at an annual interest rate of 30% by federal legislation. D. Less than $30 billion of payday loans were generated by the industry. E. Payday lenders were banned from forming relationships with nationally chartered banks.

B. Payday lending has been effectively banned in 18 states.

What was the primary objective of the Bank Holding Company Act of 1956? A. Permitted bank holding companies to acquire banks in other states. B. Restricted the banking and nonbanking acquisition activities of multibank holding companies. C. Regulated foreign bank branches and agencies in the United States. D. Bank holding companies were permitted to convert out-of-state subsidiary banks into branches of a single interstate bank. E. Allowed for the creation of a financial services holding company.

B. Restricted the banking and nonbanking acquisition activities of multibank holding companies.

Identify the primary regulator (s) of mutual funds. A. Fed. B. SEC. C. NASD. D. State regulators. E. Stock exchanges.

B. SEC.

Legislation designed to improve corporate governance practices, especially as they relate to accounting practices, is the A. National Securities Markets Improvement Act of 1996. B. Sarbanes-Oxley Act. C. U.S.A. Patriot Act. D. Financial Services Modernization Act of 1999. E. Bank Holding Company Act.

B. Sarbanes-Oxley Act.

Which act appointed the National Association of Securities Dealers (NASD) to supervise mutual fund share distributions? A. Securities Act of 1933. B. Securities Exchange Act of 1934. C. Investment Advisers Act. D. Investment Company Act. E. Market Reform Act of 1990.

B. Securities Exchange Act of 1934.

Which of the following differentiates securities firms from investment banks? A. Securities firms are concerned with the commercial side of the business while investment banks are concerned with the retail side of the business. B. Securities firms assist in trading of existing securities while investment banks specialize in underwriting new securities. C. Securities firms underwrite new issues of securities while investment banks provide brokerage services. D. Securities firms originate new issues of securities and investment banks underwrite the securities. E. Securities firms are concerned with private placements of securities whereas investment banks are concerned with publicly traded securities.

B. Securities firms assist in trading of existing securities while investment banks specialize in underwriting new securities.

Which of the following is the most important source of funds for savings institutions? A. Borrowings from the Federal Home Loan Bank. B. Small time and savings deposits. C. Repurchase agreements. D. Direct federal fund borrowings. E. Negotiable certificates of deposit.

B. Small time and savings deposits.

Which of the following is most typical of broker-dealers? A. They assist in underwriting of new securities. B. They assist in trading of existing securities. C. They assist in issuing new securities. D. They assist in underwriting and distribution of new securities. E. All of the above.

B. They assist in trading of existing securities.

Which of the following is true about the values of most money market mutual fund shares? A. They fluctuate heavily. B. Values are fixed at $1. C. Values are fixed at $100. D. They depend on market demand. E. They are considered closed-end funds.

B. Values are fixed at $1.

Which of the following is the type of loan that Ford Motor Credit Corporation provides to Ford dealers to finance the cars that the dealer has for sale? A. Inventory loan. B. Wholesale loan. C. Automobile lease. D. Factoring. E. Equipment loan.

B. Wholesale loan.

The asset transformation function of FIs typically involves A. receipt of securities through electronic payments systems. B. altering the liquidity and maturity features of funds sources used to finance the FI's asset portfolio. C. granting loans to transform funds deficit units into funds surplus units. D. investing short-term funds in off-balance sheet activities. E. transferring of funds from one generation to another.

B. altering the liquidity and maturity features of funds sources used to finance the FI's asset portfolio

To be deemed "accredited" and able to invest in a hedge fund, an investor must have A. a net worth of over $2 million. B. an annual income of at least $200,000. C. an annual income of at least $500,000 if married. D. a net worth of over $4 million. E. a retirement savings plan and over $1 million in net worth.

B. an annual income of at least $200,000.

Program trading involves A. online trading services provided to customers by electronic trading securities firms. B. computer-driven buying or selling of baskets of 15 or more stocks by institutional traders. C. purchase and sale of assets that are potentially but not necessarily equivalent. D. buying blocks of securities in anticipation of some information release. E. providing a platform for customers to trade without the use of a broker.

B. computer-driven buying or selling of baskets of 15 or more stocks by institutional traders.

An investment banker agrees to underwrite an issue of 10 million shares of stock for Rochester Industries on a best-efforts basis. The investment banker is able to sell 8 million shares for $10.50 per share, and it charges Rochester Industries $0.225 per share sold What would be the profit to the investment banker it were able to sell all 10 million shares for $12.75 per share? A. Profit of $2,250,000. B. Loss of $7,500,000. C. Profit of $7,500,000. D. Loss of $3,000,000. E. Profit of $3,750,000.

A. Profit of $2,250,000. The investment banker would earn $2.250.000 $0.225 per share × 10,000,000 shares = $2,250,000

This type of finance company competes directly with depository institutions for consumer loans because they can frequently process loans faster and more conveniently. A. Sales finance institution. B. Personal credit institution. C. Business credit institution. D. Lease finance company. E. Factoring company.

A. Sales finance institution.

Which of the following is true of private placement of securities? A. Securities are placed with few large institutional investors. B. Securities of private firms are sold to the investing public at lower prices. C. They must be registered with the SEC. D. Public trading in these securities is not allowed. E. Subject to more stringent disclosure and informational requirements than those imposed by the SEC on publicly registered issues.

A. Securities are placed with few large institutional investors.

Which of the following is closely associated with credit allocation regulation? A. Support the FI's lending to socially important sectors. B. Transmission of monetary policy from the Federal Reserve to the economy. C. Ensure the safety and soundness of the FI. D. Prevent discrimination in lending on the basis of age, race, sex, or income. E. Protect investors against abuses.

A. Support the FI's lending to socially important sectors.

Which of the following is true about reverse repurchase agreements? A. They are securities purchased under agreements to resell. B. They account for less than 5 percent of assets of broker-dealers. C. They amount to 40.8 percent of total liabilities and equity of broker-dealers. D. They are treated as liabilities. E. They are securities temporarily lent in exchange for cash received.

A. They are securities purchased under agreements to resell.

Which of the following observations concerning credit unions is NOT true? A. They invest heavily in corporate securities. B. Member loans constitute a majority of their total assets. C. They tend to invest more of their assets in U.S. Treasuries than other DIs. D. They engage in off-balance-sheet activities. E. They focus more on providing services and less on profitability.

A. They invest heavily in corporate securities.

The qualified thrift lender test is designed to ensure that A. a floor is set for the mortgage related assets held by savings institutions. B. a ceiling is set on the mortgage related assets held by commercial banks. C. savings associations are covered by risk-based deposit insurance premiums. D. an interest rate ceiling is imposed on small savings and time deposits at savings institutions. E. regulators could close thrifts and banks faster.

A. a floor is set for the mortgage related assets held by savings institutions.

Regulatory forbearance refers to a policy of A. allowing insolvent banks to continue to operate. B. foreclosing real estate properties in the event on non-payments of mortgages. C. strict regulation of banks, closing them down as soon as they are insolvent. D. rescheduling of all loans of a client in the event of non-payment. E. Answers B and C only.

A. allowing insolvent banks to continue to operate.

Hedge fund data such as assets held and trading activity A. are primarily self-reported. B. can be independently tracked. C. can be obtained from SEC filings. D. can be obtained from research agencies. E. All of the above.

A. are primarily self-reported.

Finance companies have enjoyed very high rates of growth because they A. are willing to lend to riskier customers than commercial banks. B. charge higher rates on lower risk loans. C. do not have ties or affiliations with manufacturing firms. D. face very high levels of regulation, which assures their success. E. do not sell the loans that they originate.

A. are willing to lend to riskier customers than commercial banks.

The largest asset category of mutual funds as of 2012 was A. corporate equities. B. credit market instruments. C. U.S. government securities. D. corporate and foreign bonds. E. municipal securities.

A. corporate equities.

The following are protective mechanisms that have been developed by regulators to promote the safety and soundness of the banking system EXCEPT A. encouraging banks to rely more on deposits rather than debt or capital as a cushion against failure. B. encouraging banks to limit lending to a single customer to no more than 10% of capital. C. the provision of deposit insurance. D. the periodic monitoring of banks. E. encouraging banks to produce timely accounting statements and reports.

A. encouraging banks to rely more on deposits rather than debt or capital as a cushion against failure.

The function of institutional venture capital firms is to A. find and fund the most promising new firms. B. lend funds on a long-term basis to promising new companies with no track record. C. take equity positions in successful established companies. D. lend funds to established companies that are faltering. E. none of the above.

A. find and fund the most promising new firms.

Net regulatory burden for FIs is higher because regulators may require the FI to A. hold more capital than what would be held without regulation. B. produce less information than would be produced without regulation. C. hold more debt than what would be held without regulation. D. hold fewer reserves than they would without regulation. E. All of the above.

A. hold more capital than what would be held without regulation.

According to SEC Rule 415, A. larger corporations can register their new issues with the SEC up to two years in advance. B. firms should disclose soft dollar arrangements to their clients. C. large investors are allowed to begin trading privately placed securities among themselves. D. firms are required to maintain records of the information used to verify the identity of a person opening an account. E. publicly held companies must disclose all material information that might affect investment decisions to all investors at the same time.

A. larger corporations can register their new issues with the SEC up to two years in advance.

In comparison to a typical commercial bank, an investment bank is likely to have A. lower levels of capital. B. higher reliance on long-term debt. C. lower levels of repurchase agreements. D. higher levels of net interest margin. E. higher levels of loans to customers.

A. lower levels of capital.

The short-term mutual fund sector includes A. money market mutual funds. B. hybrid funds. C. equity funds. D. bond funds. E. tax-exempt municipal bond funds.

A. money market mutual funds.

The largest asset class on FDIC-insured savings institutions' balance sheet as of year-end 2012 was A. mortgage loans. B. cash. C. investment securities. D. deposits. E. non-mortgage Loans.

A. mortgage loans.

A significant recent trend in the provision of financial services is that households increasingly prefer denomination intermediation and information services provided by A. mutual funds and money market mutual funds. B. commercial banks. C. insurance companies. D. hedge funds. E. investment banks.

A. mutual funds and money market mutual funds.

A consumer lending function is performed by each of the following FIs EXCEPT A. mutual funds. B. finance companies. C. pension funds. D. depository institutions. E. insurance companies.

A. mutual funds.

Soft dollars is a term often used in reference to the portion of a fee or commission that is allocated to A. research and other advisory services. B. custody and escrow services. C. clearance and settlement services. D. banking services. E. back office services.

A. research and other advisory services.

A company that specializes in making loans to the customers of a particular retailer or manufacturer would best be categorized as a A. sales finance institution. B. personal credit institution. C. business credit institution. D. lease finance company. E. factoring company.

A. sales finance institution.

The largest liability on credit unions' balance sheet as of September 30, 2012 was A. small time and savings deposits. B. open-market paper. C. repurchase agreements. D. ownership shares. E. share advances.

A. small time and savings deposits.

One of the primary reasons that investment banks were allowed to convert to bank holding companies during the recent financial crisis was recognition that A. their operating activities were too risky and they needed the cushion of bank deposits to alleviate funding risks. B. the industry had acquired too much capital during the previous decade. C. bank holding companies needed the ability to underwrite new issues of corporate securities. D. it was the only way an investment bank could qualify for federal bailout funds. E. the Federal Reserve was unable to purchase troubled assets from investment banks, but they could from bank holding companies.

A. their operating activities were too risky and they needed the cushion of bank deposits to alleviate funding risks.

One of the primary reasons that investment banks were allowed to convert to bank holding companies during the recent financial crisis was recognition that A. their operating activities were too risky and they needed the cushion of bank deposits to alleviate funding risks. B. the industry had acquired too much capital during the previous decade. C. bank holding companies needed the ability to underwrite new issues of corporate securities. D. it was the only way an investment bank could qualify for federal bailout funds. E. the Federal Reserve was unable to purchase troubled assets from investment banks, but they could from bank holding companies.

A. their operating activities were too risky and they needed the cushion of bank deposits to alleviate funding risks.

During the period from 1977 to 2012, A. total assets in finance companies grew over 1,000%. B. commercial paper became a less important source of funds for finance companies. C. assets in finance companies became less diversified. D. mortgage lending declined in importance to finance companies. E. in finance companies, consumer lending increased as a percent of total assets.

A. total assets in finance companies grew over 1,000%.

Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding. If the price of P&G shares rises to $35 and the price of Microsoft falls to $40.00, what is the new NAV of both funds? A. $26.50 and $45.00. B. $13.25 and $13.00. C. $39.75 and $22.50. D. $53.00 and $45.00. E. $26.50 and $22.50.

A.$26.50 and $45.00. The net asset values (NAVs) are $26.50 and $45.00 respectively

Discount brokers A. are securities firms focused on providing research support for customers. B. conduct trades for customers but do not offer investment advice. C. allow customers to receive investment advice at very low rates. D. effect trades for customers on- or offline while offering investment advice. E. are electronic trading securities firms that allow customers to trade without the use of a broker.

B. conduct trades for customers but do not offer investment advice.

Price and quantity restrictions in regulation are usually aimed at determining whether an FI is meeting certain A. consumer protection guidelines. B. credit allocation guidelines. C. investor protection guidelines. D. safety and soundness guidelines. E. entry regulation guidelines.

B. credit allocation guidelines.

The federal government has traditionally extended safety nets to DIs consisting of A. deposit insurance, discount window borrowing, and reserve requirements. B. deposit insurance and discount window borrowing. C. deposit insurance, unemployment insurance, and discount window borrowing. D. deposit insurance, open market operations, and discount window borrowing. E. deposit insurance protection.

B. deposit insurance and discount window borrowing.

Traditionally, regulation of FIs in the U.S. has been A. minimal, as evidenced by the recent financial crisis. B. extensive, as a result of the importance of FI to the economy. C. minimal, because the free market is allowed to allocate financial resources. D. extensive, because banks have monopoly power. E. no different from regulation of non-financial firms.

B. extensive, as a result of the importance of FI to the economy.

The type of abusive activity that involves cases where investors were able to buy or sell mutual fund shares long after the price had been set each day is A. market timing. B. late trading. C. directed brokerage. D. improper fee assessment. E. None of the above.

B. late trading.

Customer deposits are classified on a DI's balance sheet as A. assets, because the DI uses deposit funds to earn profits. B. liabilities, because the DI uses deposits as a source of funds. C. assets, because customers view deposits as assets. D. liabilities, because the DI must meet reserve requirements on customer deposits. E. liabilities, because DIs are required to serve depositors.

B. liabilities, because the DI uses deposits as a source of funds.

Regarding the relative asset size and asset growth rate of mutual fund sectors, A. long-term funds had more assets at the end of 2012, but short-term funds had grown at a faster rate since 1980. B. long-term funds had more assets at the end of 2012, and long-term funds had grown at a faster rate since 1980. C. short-term funds had more assets at the end of 2012, but long-term funds had grown at a faster rate since 1980. D. short-term funds had more assets at the end of 2012, and short-term funds had grown at a faster rate since 1980. E. More than one of the above is correct.

B. long-term funds had more assets at the end of 2012, and long-term funds had grown at a faster rate since 1980.

The housing bubble that began building in 2001 was primarily the result of A. the availability of low-cost affordable homes. B. low interest rates and increased liquidity provided by the Federal Reserve. C. a change in income tax policy that favored home ownership. D. increased demand for U.S. real estate by international investors. E. lack of available residential rental property.

B. low interest rates and increased liquidity provided by the Federal Reserve

Fees investors are charged to cover administration and shareholder services are called A. 12b-1 fees. B. management fees. C. sales loads. D. preemptive taxes. E. transaction fees.

B. management fees.

Economic collapse during the 1930s, the banking system in the U.S. performed directly or indirectly all financial services. Those functions included all of the following EXCEPT A. commercial banking. B. money market funds. C. investment banking. D. stock investing. E. insurance services.

B. money market funds

The largest liability on U.S. commercial banks' balance sheet as of September 30. 2012 was A. investment securities. B. non-transaction accounts. C. transaction accounts. D. borrowings. E. cash.

B. non-transaction accounts.

A company that specializes in making installment loans to consumers would best be categorized as a A. sales finance institution. B. personal credit institution. C. business credit institution. D. lease finance company. E. factoring company.

B. personal credit institution.

In financing their asset growth, finance companies A. have relied more on bank loans over time. B. rely heavily on short-term commercial paper. C. use less equity capital than commercial banks. D. do not issue demand deposits, but can issue time deposits. E. use very small amounts of long-term debt and bonds.

B. rely heavily on short-term commercial paper.

The recent financial crisis highlighted, in retrospect, how heavily households and businesses had come to rely on FIs to act as specialists in A. generating profits and lowering costs. B. risk measurement and management. C. investment advice and brokerage services. D. time intermediation and denomination mediation. E. derivative securities and interbank borrowing.

B. risk measurement and management.

Verifying the minimum level of capital or equity that must be held to fund the operations of an FI is part of the goal of A. investor protection regulation. B. safety and soundness regulation. C. entry regulation. D. credit allocation regulation. E. consumer protection regulation.

B. safety and soundness regulation.

The largest liability on FDIC-insured savings institutions' balance sheet as of year-end 2012 was A. commercial paper. B. small time and savings deposits. C. repurchase agreements. D. FHLBB advances. E. cash.

B. small time and savings deposits

The primary regulators of savings institutions are A. the Federal Reserve and the FDIC. B. the Office of Thrift Supervision and the FDIC. C. the FDIC and the Office of the Comptroller of the Currency. D. the Office of Thrift Supervision and the Comptroller of the Currency. E. the Federal Reserve and the Comptroller of the Currency.

B. the Office of Thrift Supervision and the FDIC.

The strong performance of commercial banks during the decade before 2007 was due to A. the stability of interest rates during this period. B. the ability of banks to shift credit risk from their balance sheets to financial markets. C. the contraction of the number of banks and thrifts. D. the growth in the number of thrifts and credit unions. E. All of the above.

B. the ability of banks to shift credit risk from their balance sheets to financial markets.

Offering bank deposit-like accounts to individual customers by a securities firm involves A. the function of investing. B. the function of cash management. C. the function of market making. D. the function of trading. E. the function of investment banking.

B. the function of cash management.

The most common benchmark of relative size of a firm in the securities trading and underwriting industry is based on A. total asset value. B. total equity. C. total debt. D. annual sales. E. annual profits.

B. total equity.

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a best-efforts basis. The investment banker is able to sell 4.5 million shares for $31.00 per share and it charges NetChoice, Inc. $0.375 per share sold. What is the profit to the investment banker if it is able to sell 4.5 million shares for $31 per share? A. Profit of $1,875,000. B. Loss of $1,275,000. C. Profit of $1,687,500. D. Loss of $3,125,000. E. Profit of $3,125,500.

C. Profit to investment bank is $0.375 per share × $4,500,000 shares = $1,687,500

An investor invests $100,000 in a mutual fund that has a 5 percent front-end load, charges a management fee of 0.5 percent, and a 12b-1 fee of 0.25 percent. The investor plans to leave the investment for one year. What is the dollar amount of the total shareholder cost? A. $5,000. B. $5,500. C. $5,750. D. $750. E. $500.

C. Dollar cost = Principle invested × (front-end load + management fee + 12b-1 fee) $5,750 = $100,000 × (0.05 + 0.005 + 0.0025)

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a best-efforts basis. The investment banker is able to sell 4.5 million shares for $31.00 per share and it charges NetChoice, Inc. $0.375 per share sold. What is the profit to the investment banker if all 5 million shares were sold for $35 per share? A. Profit of $1,275,000. B. Loss of $1,875,000. C. Profit of $1,875,000. D. Loss of $3,125,000. E. Profit of $3,125,500. The investment bank would receive $1,875,000 $0.375 per share × 5,000,000 shares = $1,875,000

C. The investment bank would receive $1,875,000 $0.375 per share × 5,000,000 shares = $1,875,000

Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding. What is the NAV of both funds? A. $30.33 and $13.50. B. $60.00 and $27.00. C. $30.00 and $54.00. D. $60.00 and $27.00. E. $15.00 and $54.00.

C. $30.00 and $54.00.

The Securities Investor Protection Corporation (SIPC) protects investors against losses of up to ____ on securities firm failures. A. $100,000 B. $200,000 C. $500,000 D. $1,000,000 E. $25,000,000

C. $500,000

An investor purchases fund shares with a 3 percent front-end load and expects to hold the shares for 10 years. The annualized sales load incurred by the investor is _______ per year. A. 3 percent B. 30 percent C. 0.3 percent D. 1.3 percent E. 1 percent

C. 0.3 percent

In what year did housing prices begin to deteriorate leading to a jump in defaults in the subprime mortgage markets and the onset of the recent financial crisis? A. 2001. B. 2003. C. 2006. D. 2008. E. 2010.

C. 2006

By late 2012, the number of commercial banks in the U.S. was approximately A. 2,200. B. 4,680. C. 6,170. D. 8,100. E. 12,700.

C. 6,170

Compared to commercial banks, why do finance companies often have substantial industry and product expertise? A. Because they have no bank-type regulators looking directly over their shoulders. B. Because they are specialized in market research and analysis. C. Because they are often subsidiaries of corporate-sector holding companies. D. Because they are more often willing to accept risky customers. E. All of the above.

C. Because they are often subsidiaries of corporate-sector holding companies.

The first mutual fund was founded in this city in 1924. A. New York, New York B. San Francisco, California C. Boston, Massachusetts D. London, England E. Paris, France

C. Boston, Massachusetts

It is estimated that 75 percent of all hedge funds are located in A. Bermuda. B. Hong Kong. C. Cayman Islands. D. Luxembourg. E. San Marino.

C. Cayman Islands.

Which of the following identifies the primary function of the Office of the Comptroller of the Currency? A. Manage the deposit insurance fund and carry out bank examinations. B. Regulate and examine bank holding companies as well as individual commercial banks. C. Charter national banks and approve their merger activity. D. Determine permissible activities for state chartered banks. E. Stand as the "lender of last resort" for troubled banks.

C. Charter national banks and approve their merger activity.

A mutual fund has the following share characteristics: Shares are offered at the NAV with no front-end load, a 12b-1 fee of 1 percent is charged, a back-end load of 1 percent is charged only if the shares are sold by the investor within one year of purchase, and the shares do not convert to any other class of shares. These shares would be classified as A. Class A shares. B. Class B shares. C. Class C shares. D. Class D shares. E. either Class A or Class C shares.

C. Class C shares.

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a best-efforts basis. The investment banker is able to sell 4.5 million shares for $31.00 per share and it charges NetChoice, Inc. $0.375 per share sold. How much money does NetChoice, Inc. receive? A. $139,500,500. B. $137,812,500. C. $155,000,000. D. $153,125,000. E. $105,000,000. NetChoice receives ($31.00 - $0.375) × 4,500,000 = $30.625 per share × 4,500,000 shares = $137,812,500

B NetChoice receives ($31.00 - $0.375) × 4,500,000 = $30.625 per share × 4,500,000 shares = $137,812,500

Mutual fund shares that are offered for sale at the NAV without a front-end load, but which charge a combination of 12b-1 fees and a back-end load, and whose back-end load typically remains in effect for 6 to 8 years, are A. Class A shares. B. Class B shares. C. Class C shares. D. Class D shares. E. either Class A or Class C shares.

B. Class B shares.

What is the defining characteristic of the dual banking system? A. Coexistence of parent and holding companies. B. Coexistence of both nationally chartered and state chartered banks. C. Control of nationally chartered and state chartered banks by the state regulators. D. Control of nationally chartered banks by both FRS and State bank regulators. E. Nonbanking companies carrying out both banking and other activities.

B. Coexistence of both nationally chartered and state chartered banks.

This broad class of loans constitutes the highest percentage of total assets for all U.S. commercial banks as of the end of 2012. A. Commercial and industrial. B. Commercial and residential real estate. C. Individual loans. D. Credit card debt. E. Less developed country loans.

B. Commercial and residential real estate.

Which of the following repealed the 1933 Glass-Steagall barriers between commercial banking, insurance, and investment banking? A. Financial Institutions Reform Recovery and Enforcement Act (1989). B. Financial Services Modernization Act (1999). C. Competitive Equality in Banking Act (1987). D. The Bank Holding Company Act (1956). E. Garn-St. Germain Depository Institutions Act (1982).

B. Financial Services Modernization Act (1999).

Which of the following refers to the process used to determine the value of mutual fund shares each per day? A. Directed brokerage. B. Marking-to-market. C. Late trading. D. Market timing. E. Spinning.

B. Marking-to-market.

Which of the following is traditionally the major type of consumer loans for finance companies? A. Revolving loans. B. Motor vehicle loans and leases. C. Wholesale loans. D. Equipment leases. E. Home equity loans.

B. Motor vehicle loans and leases.

What agency acts as the distributor or "clearinghouse" for mutual fund transactions? A. SEC. B. NASD. C. FedWire. D. NYSE. E. U.S. Treasury.

B. NASD.

Which of the following is a self-regulatory organization involved in the day-to-day regulation of trading practices? A. Securities and Exchange Commission. B. New York Stock Exchange. C. Securities Investor Protection Corporation. D. Chicago Board of Trade. E. All of the above.

B. New York Stock Exchange.

Retirement funds under management of mutual funds manage approximately what percentage of the mutual fund assets. A. One-tenth B. One-quarter C. One-half D. Three-quarters E. Zero.

B. One-quarter

Which of the following observations concerning trust departments is true? A. They are found only among smaller community banks. B. Only the largest banks have sufficient staff to offer trust services. C. They provide banking services to other banks. D. Pension fund assets are the largest category of assets managed by trust departments. E. They primarily handle assets for financially sophisticated investors.

B. Only the largest banks have sufficient staff to offer trust services.

Which of the following is NOT true? A. The fastest growing area of finance companies in recent years has been in the area of leasing and business loans. B. Consumer loans represent the largest portion of the loan portfolio of finance companies. C. Finance companies rely on short-term commercial paper and customer deposits to finance their assets. D. Finance companies rely on short-term commercial paper and long-term debt to finance their assets. E. Finance companies are now the largest issuers of commercial paper in the U.S.

C. Finance companies rely on short-term commercial paper and customer deposits to finance their assets.

National full-line investment and brokerage firms A. may specialize in providing service to both retail and corporate customers. B. usually serve only as discount brokers without offering investment advice. C. may specialize more in corporate finance with high activity in trading securities. D. All of the above. E. Answers A and C only.

E. Answers A and C only.

The charter values of FIs will be higher if regulators A. increase the cost of entry by requiring more capital. B. restrict the number of activities permitted by FIs, thereby increasing potential profits. C. restrict the number of FIs that can operate in a given market. D. Answers A and B. E. Answers A and C.

E. Answers A and C.

In market-making A. principal transactions are two-way transactions on behalf of customers, such as a dealer working for a fee or commission. B. principal transactions are when market makers take long or short positions and seek profits on price movements. C. market makers take inventory positions to stabilize the market in the securities. D. Answers A and C only. E. Answers B and C only.

E. Answers B and C only.

Open-end mutual funds A. require that NAV consider the amount of discount or premium in the share value. B. calculate the NAV based on the total value of assets held divided by the number of fund shares outstanding. C. may experience fluctuations in the number of shares outstanding on a daily basis. D. All of the above. E. Answers B and C only.

E. Answers B and C only.

The NAV of a closed-end investment company shares is determined at any point in time by A. the number of shares available. B. the value of the underlying shares owned by the company. C. the demand for the investment company's shares. D. Answers A and B only. E. Answers B and C only.

E. Answers B and C only.

These types of funds mix hedge funds and other pooled investment vehicles. A. Distressed securities funds. B. Macro funds. C. Value funds. D. Opportunistic funds. E. Fund of funds.

E. Fund of funds.

Which of the following is the regulation that allowed the SEC to restrict program trading when it deems necessary? A. Securities Exchange Act. B. Investment Advisers Act. C. Investment Company Act. D. Insider Trading and Securities Fraud Enforcement Act. E. Market Reform Act.

E. Market Reform Act.

Which of the following FIs does not provide a business lending function? A. Depository institutions. B. Insurance companies. C. Finance companies. D. Pension funds. E. Mutual funds.

E. Mutual funds

Which of the following 2 firms survived as investment banks following the most recent financial crisis? A. Morgan Stanley and Bear Stearns. B. Goldman Sachs and Merrill Lynch. C. Lehman Brothers and Morgan Stanley. D. Merrill Lynch and Lehman Brothers. E. None of the above.

E. None of the above.

New SEC rules call for shareholder reports to include A. clear information to investors on brokerage commissions and discounts. B. information on how the fund compares with industry averages on fees and loads. C. information on eligibility for breakpoint discounts. D. All of the above. E. Only two of the above.

E. Only two of the above.

Which of the following is a major source of debt capital for a captive finance company? A. Premiums. B. Deposits. C. Equity. D. Bank loans. E. Parent company.

E. Parent company.

An investment banker agrees to underwrite an issue of 10 million shares of stock for Rochester Industries on a best-efforts basis. The investment banker is able to sell 8 million shares for $10.50 per share, and it charges Rochester Industries $0.225 per share sold What is the profit to the investment banker it sells 8 million shares for $9.75 per share? A. Profit of $1,000,000. B. Loss of $7,500,000. C. Profit of $7,000,000. D. Loss of $7,000,000. E. Profit of $1,800,000.

E. Profit of $1,800,000. At a price of $9.75, the profit to the investment banker is unchanged since the compensation relies only on the number of shares sold. $0.225 per share × 8,000,000 = $1,800,000

An investment banker agrees to underwrite an issue of 10 million shares of stock for Rochester Industries on a best-efforts basis. The investment banker is able to sell 8 million shares for $10.50 per share, and it charges Rochester Industries $0.225 per share sold What is the profit to the investment banker if it is able to sell 8 million shares for $10.50 per share? A. Profit of $1,000,000. B. Loss of $7,500,000. C. Profit of $7,000,000. D. Loss of $7,000,000. E. Profit of $1,800,000.

E. Profit of $1,800,000. The profit to the investment banker is $1,800,000 $0.225 per share × 8,000,000 shares sold = $1,800,000

Which of the following is NOT a provision of Sarbanes-Oxley Act? A. Created an independent auditing oversight board. B. Increased penalties for corporate wrongdoers. C. Forced faster and more extensive financial disclosure. D. Created avenues of recourse for aggrieved shareholders. E. Required investment analysts' compensation to be a function of the quality and accuracy of research they produce.

E. Required investment analysts' compensation to be a function of the quality and accuracy of research they produce.

Which of the following observations concerning payday lenders is NOT true? A. They provide short-term cash advances. B. Their advances are due when borrowers receive their next paycheck. C. The industry originated from check cashing outlets. D. The payday loan industry is regulated at the state level. E. The demand for short-term loans has decreased considerably.

E. The demand for short-term loans has decreased considerably.

Which of the following observations concerning mortgages is NOT valid? A. They may refer to loans secured by lien on residential houses. B. They are a minor component in finance company portfolios. C. Mortgage-backed securities are created by securitization. D. Home equity loans are examples of second mortgages. E. The interest on a mortgage loan secured by a primary residence is not tax deductible to the homeowner.

E. The interest on a mortgage loan secured by a primary residence is not tax deductible to the homeowner.

What does a hurdle rate specified by a hedge fund indicate? A. The maximum number of investors possible in the fund that would allow it to avoid regulations. B. The minimum amount required to be invested in the fund. C. The net worth criterion for an individual to be deemed an "accredited investor." D. The highest net asset value that the fund has previously achieved, above which the manager receives a performance fee. E. The minimum annualized performance benchmark that must be realized before a performance fee can be assessed.

E. The minimum annualized performance benchmark that must be realized before a performance fee can be assessed.

Which of the following observations concerning hedge funds is NOT true? A. They are pooled investment vehicles. B. Historically, they were not required to register with the SEC. C. Historically, they were subject to virtually no regulatory oversight. D. They usually take significant risk. E. They have to disclose their activities to third parties.

E. They have to disclose their activities to third parties.

Which of the following hedge fund objectives would be classified under the "risk avoidance" category? A. Special situations funds. B. Opportunistic funds. C. Fund of funds. D. Market timing funds. E. Value funds.

E. Value funds.

An attempt by a market maker to earn a profit on the price movements of securities by taking inventory positions for its own account is called A. risk arbitrage. B. an agency transaction. C. best efforts underwriting. D. pure arbitrage. E. a principal transaction.

E. a principal transaction.

Home equity loans have A. become less profitable for finance companies. B. seen reduced demand since the Tax Reform Act of 1986 was passed. C. interest charges that are not tax deductible. D. a higher bad debt expense than those on other finance company loans. E. allows customers to borrow on a line of credit secured with a second mortgage on their home.

E. allows customers to borrow on a line of credit secured with a second mortgage on their home.

Customer loans are classified on a DI's balance sheet as A. assets, because the DI's major asset is its client base. B. liabilities, because the customer may default on the loan. C. assets, because the DI earns servicing fees on the loan. D. liabilities, because the DI must transfer funds to the borrower at the initiation of the loan. E. assets, because DIs originate and monitor loan portfolios.

E. assets, because DIs originate and monitor loan portfolios.

A company that provides financing to corporations, especially through equipment leasing and factoring would best be categorized as a A. sales finance institution. B. personal credit institution. C. subprime lender. D. loan shark. E. business credit institution.

E. business credit institution.

All of the following are examples of participants in the shadow banking system EXCEPT A. money market mutual funds (MMMFs). B. structured investment vehicles (SIVs). C. credit hedge funds. D. limited-purpose finance companies. E. credit unions.

E. credit unions

The most numerous of the institutions that define the depository institutions segment of the FI industry in the US is (are) A. savings associations. B. small commercial banks. C. large commercial banks. D. savings banks. E. credit unions.

E. credit unions.

Each of the following is a special function performed by FIs at a macro level EXCEPT A. transmission of monetary policy. B. credit allocation. C. intergenerational wealth transfers or time intermediation. D. denomination intermediation. E. interbank lending and investing.

E. interbank lending and investing.

Securities firms have equity ratios that are lower than those for commercial banks because their balance sheets contain a larger portion of A. illiquid assets. B. current liabilities. C. long term liabilities. D. fixed assets. E. liquid assets.

E. liquid assets.

Financial intermediaries are A. funds surplus units, because they exist to make money. B. funds deficit units, because they must pay heavy regulatory fees and taxes. C. funds surplus units, because they hold large portfolios of financial securities. D. funds deficit units, because they must comply with minimum capital requirements. E. neither funds surplus nor deficit units.

E. neither funds surplus nor deficit units.

A person with a history of bad credit and an inconsistent record of payments on other debt is most likely to find a short-term loan through a A. commercial bank. B. personal credit institution. C. savings bank. D. sales finance institution. E. payday lender.

E. payday lender.

Factoring involves A. making loans to customers that depository institutions find too risky to lend. B. providing financing for the purchase of products manufactured by the parent company. C. approving of collateral that depository institutions do not find acceptable. D. providing financing through equipment leasing. E. purchasing of accounts receivable by finance company from corporate customers.

E. purchasing of accounts receivable by finance company from corporate customers.

The returns obtained by investors of mutual funds include the following except A. interest income earned on assets. B. dividend income earned on assets. C. capital gains on assets sold by the fund. D. capital appreciation in the underlying value of the assets held in the portfolio. E. refunds of load charges and management fees.

E. refunds of load charges and management fees.

State-chartered commercial banks may be regulated by A. the FDIC only. B. the FDIC and the Federal Reserve System. C. the Federal Reserve System only. D. the FDIC, the Federal Reserve System, and the Comptroller of the Currency. E. the FDIC, the Federal Reserve System, the Comptroller of the Currency, and state banking commissions.

E. the FDIC, the Federal Reserve System, the Comptroller of the Currency, and state banking commissions.

Which of the following is NOT considered a trading activity of securities firms? A. Position trading. B. Pure arbitrage. C. Liquidity trading. D. Risk arbitrage trading. E. Program trading.

C. Liquidity trading.

Which of the following is common to both hedge funds and mutual funds? A. SEC Registration. B. Disclosure norms. C. Management fees. D. Performance fees. E. Investor profiles.

C. Management fees.

Which of the following refers to the term "maturity intermediation"? A. Creation of a secondary market mature enough to withstand volatility. B. Overcoming constraints to buying assets imposed by large minimum denomination size. C. Mismatching the maturities of assets and liabilities. D. Reducing information costs or imperfections between households and corporations. E. The transfer of wealth from one generation to the next.

C. Mismatching the maturities of assets and liabilities

Which of the following measures the difference between the private costs of regulations and the private benefits of those regulations for the producers of financial services? A. Capital adequacy. B. Agency costs. C. Net regulatory burden. D. Charter value. E. Liquidity risk.

C. Net regulatory burden

These organizations were originated to avoid the legal definition of a bank. A. Money center banks. B. Savings associations. C. Nonbank banks. D. Financial services holding companies. E. Savings banks.

C. Nonbank banks.

An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share. What is the profit (loss) to the investment banker? A. Profit of $1,000,000. B. Profit of $2,000,000. C. Profit of $7,000,000. D. Loss of $7,500,000. E. Loss of $1,000,000.

C. Profit of $7,000,000. The investment banker will have a profit of $7,000,000. ($11.20 - $10.50) × 10,000,000 shares = $0.70 per share × 10,000,000 = $7,000,000

An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share. What is the profit (loss) to the investment banker? A. Profit of $1,000,000. B. Profit of $2,000,000. C. Profit of $7,000,000. D. Loss of $7,500,000. E. Loss of $1,000,000.

C. Profit of $7,000,000. The investment banker will have a profit of $7,000,000. ($11.20 - $10.50) × 10,000,000 shares = $0.70 per share × 10,000,000 = $7,000,000

Which of the following dominates the loan portfolios of banks with assets less than one billion dollars? A. Commercial loans. B. Consumer loans. C. Real estate loans. D. Credit card debt. E. Industrial loans.

C. Real estate loans.

Why is the failure of a large bank more detrimental to the economy than the failure of a large steel manufacturer? A. The bank failure usually leads to a government bailout. B. There are fewer steel manufacturers than there are banks. C. The large bank failure reduces credit availability throughout the economy. D. Since the steel company's assets are tangible, they are more easily reallocated than the intangible bank assets. E. Everyone needs money, but not everyone needs steel.

C. The large bank failure reduces credit availability throughout the economy.

Which of the following is true of secondary securities? A. They include equities, bonds, and other debt claims. B. They are backed by the real assets of corporations issuing them. C. They are securities that back primary securities. D. They are securities issued by FIs. E. They must be placed in a separate account on order for primary securities to be offered.

C. They are securities that back primary securities.

Which of the following observations is true of a no-load fund? A. Purchase is subject to a sales charge. B. Sales charges may be as high as 8.5 percent. C. They market shares of the fund directly to investors. D. They use sales agents. E. They have up-front commission charges.

C. They market shares of the fund directly to investors.

A corporate venture capital firm A. has publicly-traded common stock. B. provides equity funds to companies that already have publicly traded common stock. C. is a subsidiary of a nonfinancial corporation. D. provides debt funding to only to established corporations. E. is subject to more stringent disclosure requirements than other venture capital firms.

C. is a subsidiary of a nonfinancial corporation.

A finance company may be classified as a subprime lender if it A. charges interest rates below those charged by commercial banks. B. lends to low-risk customers. C. lends to high-risk customers. D. originated from check cashing outlets in the early 1990s. E. is wholly owned by a parent corporation.

C. lends to high-risk customers.

A mutual fund that charges investors a fee similar to a commission charge is called a A. 12b-1 fee. B. no-load fund. C. load fund. D. long-term fund. E. short-term fund.

C. load fund.

Creating a secondary market in an asset by a securities firm involves the function of A. cash management. B. investing. C. market making. D. trading. E. investment banking.

C. market making.

Mutual funds that purchase Treasury bills, bank negotiable certificates of deposit, commercial paper, and other short-term securities would be classified as A. contractual institutions. B. investment institutions. C. money market funds. D. securities dealers. E. PC insurance companies.

C. money market funds.

The debate and research regarding the advantages of load funds versus no-load funds has revealed that A. the proportion of total assets invested in load funds has decreased over the last 20 years and became less than the assets in no-load funds in 2002. B. the cost of the load may not be worth the attention and advice given to investors. C. most mutual fund companies offer the majority of their funds as no-load funds. D. a load fee should be annualized over the holding period of the fund shares. E. All of the above.

C. most mutual fund companies offer the majority of their funds as no-load funds.

In contrast to earlier periods in the finance company industry, during the middle 2000s, A. regulatory reform led to decreasing profits. B. mortgages originated were generally not securitized. C. new car loan rates charged by finance companies were been lower than those of commercial banks. D. mortgage lending become less important to the industry. E. finance companies were required to offer time deposit products to their customers.

C. new car loan rates charged by finance companies were been lower than those of commercial banks.

Compared to banks and savings institutions, credit unions are able to pay a higher rate on the deposits of members because A. they intend to attract new members. B. they do not issue common stock. C. of their tax-exempt status. D. Regulation Q still applies to the industry. E. they are subject to the provisions of the Community Reinvestment Act.

C. of their tax-exempt status.

The origination of a home mortgage loan is considered to be a A. primary security, because this is the FI's primary source of business. B. secondary security, because mortgages are typically resold in the secondary market. C. primary security, because the mortgage note is a newly created security. D. secondary security if the sale is for an existing home and a primary security if it is for a new home. E. derivative security because the value of the mortgage note depends on the underlying value of the home.

C. primary security, because the mortgage note is a newly created security.

The largest asset class on U.S. commercial banks' balance sheet as of September 30, 2012 was A. investment securities. B. commercial and industrial loans. C. real estate loans. D. cash. E. deposits.

C. real estate loans.

Money center banks are considered to be any bank which A. has corporate headquarters in either New York City, Chicago, San Francisco, Atlanta, Dallas, or Charlotte. B. is a net supplier of funds on the interbank market. C. relies almost entirely on nondeposit and borrowed funds as sources of liabilities. D. does not participate in foreign currency markets. E. is not characterized by any of the above.

C. relies almost entirely on nondeposit and borrowed funds as sources of liabilities.

Safety and soundness regulations include all of the following layers of protection EXCEPT A. the provision of guaranty funds. B. requirements encouraging diversification of assets. C. the creation of money for those FIs in financial trouble. D. requiring minimum levels of capital. E. monitoring and surveillance.

C. the creation of money for those FIs in financial trouble.

As DIs made a shift from an "originate-to-hold" banking model to an "originate-to-distribute" model over the last decade, A. banks became more financially stable. B. it became easier to measure the riskiness of individual loans. C. there was a dramatic increase in systematic risk of the financial system. D. the Federal Reserve decreased the number of services that banks could provide. E. it became more difficult for households to obtain credit.

C. there was a dramatic increase in systematic risk of the financial system.

The primary advantage to the investor of a brokerage firm cash management account (CMA) over commercial bank deposit accounts is that A. no FDIC insurance is required on CMAs. B. no regulatory oversight of CMAs. C. they make it easier to buy and sell securities using funds from the CMA. D. CMAs guarantee higher rates of return than money market deposit accounts. E. Regulation Q interest rate ceilings do not apply to CMAs.

C. they make it easier to buy and sell securities using funds from the CMA.

Open-end mutual funds guarantee A. investors a minimum rate of return. B. investors a minimum Net Asset Value (NAV). C. to redeem investors' shares upon demand at the daily Net Asset Value (NAV). D. to earn the rate of return promised in the prospectus. E. that there will be no load charges.

C. to redeem investors' shares upon demand at the daily Net Asset Value (NAV).

Ally Financial [formerly General Motors Acceptance Corporation (GMAC)] A. is a wholly owned subsidiary of General Motors. B. only provides financing to purchasers of automobiles built by General Motors. C. was classified as a commercial bank holding company in 2008. D. did not participate in federal bailout funds during the financial crisis because of their financial strength. E. is the largest finance company in the U.S.

C. was classified as a commercial bank holding company in 2008.

The hedge fund industry is built on the theory that A. a profit can always be made if each investment has an off-setting position to cover any losses. B. proper diversification can be attained with larger sums of money and fewer assets. C. wealthy individuals should be expected to make more informed investment decisions and can take on higher levels of risk. D. strategies such as program trading and arbitrage are only successful if leverage (borrowed funds) are used. E. it takes money to make money.

C. wealthy individuals should be expected to make more informed investment decisions and can take on higher levels of risk.

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a best-efforts basis. The investment banker is able to sell 4.5 million shares for $31.00 per share and it charges NetChoice, Inc. $0.375 per share sold. If the investment bank sells 4.5 million shares for $29 per share, how much money does NetChoice, Inc. receive? A. $145,000,000. B. $130,500,000. C. $143,125,000. D. $128,812,500. E. $115,762,500.

D. At $29.00 per share NetChoice receives ($29.00 - $0.375) ×4,500,000 = $28.625 per share × 4,500,000 shares = $128,812,500

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a firm commitment basis. The investment banker pays $31.50 per share to NetChoice, Inc. for the 5 million shares of stock. It then sells those shares to the public for $30.00 per share What is the profit (loss) to the investment banker? A. Profit of $7,500,000. B. Profit of $2,000,000. C. Profit of $7,000,000. D. Loss of $7,500,000. E. Loss of $2,000,000.

D. The investment bank will lose $7,500,000 ($30.00 - 31.50) × 5,000,000 = -$1.50 per share × 5,000,000 = ($7,500,000)

Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding. Suppose Morningstar issues another 250 shares and purchases shares of Intel with the funds. What is its new NAV of Morningstar? (Assume the NAV found before the price change in P&G and Microsoft in the previous question). A. $39.20. B. $55.20. C. $34.40. D. $30.00. E. $34.00.

D. $30.00 Morningstar issues 250 shares and collects: $30 (NAV) × 250 shares = $7,500 Shares of Intel purchased: $7,500 ÷ 50 per share = 150 New net asset value = $30.00 Since issuing new shares brings dollar-for-dollar new investment funds into the portfolio, the Net Asset Value will not change immediately because of the choice of asset to purchase.

An investment banker agrees to underwrite an issue of 10 million shares of stock for Rochester Industries on a best-efforts basis. The investment banker is able to sell 8 million shares for $10.50 per share, and it charges Rochester Industries $0.225 per share sold. How much money does Rochester Industries receive? A. $15,000,000. B. $84,000,000. C. $76,200,000. D. $82,200,000. E. $110,000,000.

D. $82,200,000. Rochester Industries receives $82,200,000 ($10.50 - $0.225) × 8,000,000 = $10.275 × 8,000,000 = $82,200,000

An investor purchases fund shares with a 3 percent front-end load and expects to hold the shares for 10 years. The fund has a total fund expense ratio (including 12b-1 fees) of 1 percent per year. The annual total shareholder cost for this fund is _______ per year. A. 3 percent B. 30 percent C. 0.3 percent D. 1.3 percent E. 1 percent

D. 1.3 percent

The FIRREA Act of 1989 introduced the qualified thrift lender test (QLT), which set the percentage of assets required for qualification to be no less than A. 50 percent. B. 55 percent. C. 60 percent. D. 65 percent. E. 68 percent.

D. 65 percent.

In total, about the percentage of all retirement plan investments are in institutional funds. A. 20 percent B. 40 percent C. 6.0 percent D. 80 percent E. Zero percent

D. 80 percent

As of 2012, commercial banks with over $10 billion in assets constituted approximately ____ percent of the industry assets and numbered approximately _____. A. 50; 310 B. 60; 165 C. 70; 525 D. 80; 90 E. 90; 440

D. 80; 90

Traditionally, the percentage of depository institutions' assets funded by some form of liability is approximately A. 50 percent. B. 75 percent. C. 85 percent. D. 90 percent. E. 40 percent.

D. 90 percent.

A large number of the savings institution failures during the in the 1980s was a result of A. interest rate risk exposure. B. excessively risky investments. C. fraudulent behavior on the part of managers. D. All of the above. E. answers B and C only.

D. All of the above.

Finance companies often prefer to lease equipment to customers because A. repossession in the event of default is easier. B. a lease with little or no down payment is more attractive to business customers. C. the finance company receives the benefit of depreciation expense. D. All of the above. E. Answers A and C only.

D. All of the above.

The U.S.A. Patriot Act requires financial services firms to A. verify the identity of any person seeking to open an account. B. maintain records of the information used to verify a person's identity. C. determine whether a person opening an account is on a list of suspected terrorists. D. All of the above. E. Answers A and C only.

D. All of the above.

FIs perform their intermediary function in two ways A. they specialize as brokers between savers and users. B. they serve as asset transformers by purchasing primary securities and issuing secondary securities. C. they serve as asset transformers by purchasing secondary securities and issuing primary securities. D. Answers A and B. E. Answers A and C.

D. Answers A and B.

The market-making function of investment banking can be described as A. agency transactions are two-way transactions on behalf of customers, such as a dealer working for a fee or commission. B. agency transactions are when market makers take long or short positions and seek profits on price movements. C. market makers take inventory positions to stabilize the market in the securities. D. Answers A and C only. E. Answers B and C only.

D. Answers A and C only.

The long-term mutual fund sector includes A. money market mutual funds. B. equity funds. C. bond funds. D. Answers B and C only. E. All of the above.

D. Answers B and C only.

Which of the following observations is true? A. Central bank directly controls both inside and outside money. B. Outside money is that part of the money supply produced by the private banking system. C. Inside money refers to the quantity of notes and coin in the economy. D. Bulk of the money supply consists of inside money. E. Central banks cannot vary the quantity of outside money.

D. Bulk of the money supply consists of inside money.

Depository institutions (DIs) play an important role in the transmission of monetary policy from the Federal Reserve to the rest of the economy primarily because A. loans to corporations are part of the money supply. B. bank loans are highly regulated. C. savings institutions provide a large amount of credit to finance residential real estate. D. DI deposits are a major portion of the money supply. E. U.S. DIs compete with foreign financial institutions.

D. DI deposits are a major portion of the money supply.

Which of the following hedge fund objectives would be classified under the "more risky" category? A. Distressed securities funds. B. Fund of funds. C. Opportunistic funds. D. Emerging markets funds. E. Special situations funds.

D. Emerging markets funds

Which of the following is NOT a type of consumer loan? A. Personal cash loan. B. Mobile home loan. C. Private-label credit card loan. D. Equipment loan. E. Motor vehicle loan.

D. Equipment loan.

Which of the following is NOT true? A. The finance company industry tends to be very concentrated. B. Twenty of the largest finance companies account for more than 65% of the industry assets. C. Many of the largest finance companies tend to be wholly owned or are captive subsidiaries of major manufacturing firms. D. Finance companies specialize only in consumer loans and do not make business loans. E. Finance companies often provide captive financing for the purchase of products manufactured by their parent company.

D. Finance companies specialize only in consumer loans and do not make business loans.

Identify a major reason behind the increase in domestic underwriting activity during the 1990s. A. Enhanced non-trading profits. B. High long-term interest rates. C. Low long-term dividend rates. D. Growth in the asset-backed securities market. E. Decreased securitization of debt.

D. Growth in the asset-backed securities market

Which of the following groups of FIs have experienced the highest percentage growth in assets in the U.S. financial services industry during the past sixty years? A. Commercial banks. B. Thrifts. C. Life insurance companies. D. Investment companies. E. Finance companies.

D. Investment companies.

The dominant form of institutional venture capital firms operate as A. Corporation. B. Subsidiary of a financial company. C. Bank holding company. D. Limited partnership. E. General partnership.

D. Limited partnership.

Which of the following is NOT a major function of financial intermediaries? A. Brokerage services. B. Asset transformation services. C. Information production. D. Management of the nation's money supply. E. Administration of the payments mechanism.

D. Management of the nation's money supply.

Which practice is especially common in international funds as traders can exploit differences in time zones? A. Directed brokerage. B. Insider trading. C. Late trading. D. Market timing. E. Spinning.

D. Market timing.

Which of the following FIs does not currently provide a payment function for their customers? A. Depository institutions. B. Insurance companies. C. Finance companies. D. Pension funds. E. Mutual funds.

D. Pension funds.

Which of the following observations is true of open-end mutual funds? A. They have a fixed number of shares outstanding. B. The value of shares changes with the demand for the fund by investors. C. Investors buy and sell shares on a stock exchange. D. The demand for shares determines the number outstanding. E. Shares may trade at a premium or discount.

D. The demand for shares determines the number outstanding.

What is globalization? A. The process that causes an FI to focus more intensely on their own domestic market. B. Acceptance of the Federal Reserve as the regulator of the world financial system. C. Usually refers to the initiation of GLOBEX, a new international financial communications and trading system. D. The evolution of markets and institutions so that geographic boundaries do not restrict financial transactions. E. Joint ownership of international electronic payments systems.

D. The evolution of markets and institutions so that geographic boundaries do not restrict financial transactions.

Which of the following is true of off-balance-sheet activities? A. They involve generation of fees without exposure to any risk. B. They include contingent activities recorded in the current balance sheet. C. They invite regulatory costs and additional "taxes." D. They have both risk-reducing as well as risk-increasing attributes. E. The risk involved is best represented by notional or face value.

D. They have both risk-reducing as well as risk-increasing attributes.

Which of the following is NOT an off balance sheet activity for U.S. banks? A. Derivative contracts. B. Loan commitments. C. Standby letters of credit. D. Trust services. E. When-issued securities.

D. Trust services.

Which of the following would be a key area of activity for an investment bank specializing in the commercial side of the business? A. Purchase of existing securities. B. Sale of securities in the secondary market. C. Brokerage of existing securities. D. Underwriting issues of new securities. E. All of the above.

D. Underwriting issues of new securities.

Correspondent banking may involve A. providing banking services to other banks facing shortage of staff. B. providing foreign exchange trading services to individuals. C. holding and managing assets for individuals or corporations. D. acting as transfer and disbursement agents for pension funds. E. providing hedging services to corporations.

D. acting as transfer and disbursement agents for pension funds.

The process of providing custody and escrow services, clearance and settlement services, and research and other advisory services by a securities firm involves the function of A. mergers and acquisitions. B. market making. C. investment banking. D. back-office functions. E. cash management services.

D. back-office functions.

Pure arbitrage trading involves A. buying blocks of securities in anticipation of some information release. B. purchase of stock in a company being acquired and the sale of stock in the acquiring company. C. exploitation of a difference between a company's current value and its estimated liquidation value. D. buying an asset in one market at one price and selling it immediately in another market at a higher price. E. simultaneous purchase and sale of similar shares in a single market.

D. buying an asset in one market at one price and selling it immediately in another market at a higher price.

Nondepository financial institutions are represented by all of the following EXCEPT A. insurance companies. B. mutual funds. C. finance companies. D. credit unions. E. securities firms.

D. credit unions

When a DI makes a shift from an "originate-to-hold" banking model to an "originate-to-distribute" model, the change is likely to result in A. increased operating costs. B. increased interest rate risk. C. increased liquidity risk. D. decreased monitoring costs. E. decreased fee income.

D. decreased monitoring costs.

Considering the securities firms and investment banking industries, The National Securities Markets Improvement Act (NSMIA) of 1996 A. appointed the Federal Reserve System as the primary regulator of the industry. B. diminished the role of the National Association of Securities Dealers (NASD) in regulating the industry. C. allowed individual states the right to require registration of firms operating in the state. D. effectively affirmed the SEC as the primary regulator of the industry. E. required all firms in the industry to maintain minimum amounts of capital.

D. effectively affirmed the SEC as the primary regulator of the industry.

Investment companies are successful in attracting business away from banks and insurance companies primarily because they A. guarantee higher rates of return on savers' funds. B. remove interest rate risk for the saver. C. have no liquidity risk. D. give savers cheaper access to the direct securities markets. E. offer lower loan rates.

D. give savers cheaper access to the direct securities markets.

Compared to commercial banks, finance companies usually signal solvency and safety concerns by A. holding higher leverage ratios. B. holding lower capital-asset ratio. C. holding less liquid long-term assets. D. holding higher capital-asset ratio. E. Answers A and B only.

D. holding higher capital-asset ratio.

The management of pools of assets by securities firms is considered to be the function of A. market making. B. investment banking. C. trading. D. investing. E. cash management

D. investing.

Participation in the activities relating to the underwriting and distribution of new issues of debt and equity by a securities firm involves the function of A. investing. B. merger and acquisitions. C. market making. D. investment banking. E. trading.

D. investment banking.

Finance companies that prey on desperate higher-risk customers charging unfairly exorbitant interest rates are referred to as A. refinancing companies. B. captive companies. C. business credit companies. D. loan shark companies. E. personal credit companies.

D. loan shark companies.

Duties of a mutual fund chief compliance officer include A. policing the trading by non-fund managers. B. ensuring the accuracy of information provided to fund managers. C. reviewing fund business practices such as marketing and administration. D. reporting any wrongdoing directly to fund directors. E. All of the above.

D. reporting any wrongdoing directly to fund directors.

National-chartered commercial banks are most likely to be regulated by A. the FDIC only. B. the FDIC and the Federal Reserve System. C. the Federal Reserve System only. D. the FDIC, the Federal Reserve System, and the Comptroller of the Currency. E. the Federal Reserve System and the Comptroller of the Currency.

D. the FDIC, the Federal Reserve System, and the Comptroller of the Currency.

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a best-efforts basis. The investment banker is able to sell 4.5 million shares for $31.00 per share and it charges NetChoice, Inc. $0.375 per share sold. If the investment bank were able to sell all 5 million shares for $35, how much money would NetChoice, Inc. receive? A. $195,675,000. B. $187,500,000. C. $130,250,000. D. $175,000,000. E. $173,125,000.

E. All 5 million shares sold for $35.00 per share would provide NetChoice $173,125,000 ($35.00 - $0.375) × 5,000,000 = $34.625 × 5,000,000 = $173,125,000

As of 2011, approximately ________ of the industry total brokerage fee income was generated by firms operating as subsidiaries of commercial bank holding companies. A. 15 percent B. 25 percent C. 40 percent D. 50 percent E. 65 percent

E. 65 percent

Closed-end investment companies A. have a fixed number of shares. B. can trade at a price that is greater than, equal to, or less than the NAV. C. will trade at a different price as the number of shares of the fund changes. D. A and C only. E. A and B only.

E. A and B only.

Which of the following statements is FALSE? A. A financial intermediary specializes in the production of information. B. A financial intermediary reduces its risk exposure by pooling its assets. C. A financial intermediary benefits society by providing a mechanism for payments. D. A financial intermediary may act as a broker to bring together funds deficit and funds surplus units. E. A financial intermediary acts as a lender of last resort.

E. A financial intermediary acts as a lender of last resort.

Which of the following refers to the possibility that a firm's owners or managers will take actions contrary to the promises contained in the covenants of the securities the firm issues to raise funds? A. Liquidity risk. B. Price risk. C. Credit risk. D. Intermediation. E. Agency costs.

E. Agency costs.

As compared to purchasing an individual stock, a no-load mutual fund investor will usually get A. commission less reinvestment opportunities. B. better diversification. C. no-cost switching between funds within the same fund family. D. lower commission costs. E. All of the above

E. All of the above

Which of the following is NOT a type of finance company? A. Sales finance institutions. B. Personal credit institutions. C. Business credit institutions. D. Captive finance company. E. All of the above are types of finance companies.

E. All of the above are types of finance companies.

12b-1 fees A. are determined as a small percentage of the fund's investable assets. B. are annual fees to cover distribution and marketing costs of the fund. C. have been approved by the SEC. D. are capped at a maximum 0.25 percent for no-load funds. E. All of the above.

E. All of the above.

As a result of illegal and abusive activities in recent years, new rules and regulations were imposed on mutual fund companies in 2004. These rules were intended to A. close legal loopholes that some fund managers had abused. B. improve fund governance. C. give investors more information about conflicts of interest. D. ensure the accuracy of information given to regulators. E. All of the above.

E. All of the above.

Finance companies charge different rates than do commercial banks which A. tend to be higher than bank rates. B. often reflect a more risky borrower. C. causes some finance companies to be classified as subprime lenders. D. must meet state usury law guidelines. E. All of the above.

E. All of the above.

In a world without FIs, households will be less willing to invest in corporate securities because they A. are not able to monitor the activities of the corporation more closely than FIs. B. tend to prefer shorter, more liquid securities. C. are subject to price risk when corporate securities are sold. D. may not have enough funds to purchase corporate securities. E. All of the above.

E. All of the above.

In its role as a delegated monitor, an FI A. keeps track of required interest and principal payments on loans it originates. B. works with financially distressed borrowers in danger of defaulting on their loans. C. holds portfolios of loans that they continue to service. D. maintains contact with borrowers to ensure that loan proceeds are utilized for intended purposes. E. All of the above.

E. All of the above.

Many households place funds with financial institutions because many FI accounts provide A. lower denominations than other securities. B. flexible maturities verses other interest-earning securities. C. better liquidity than directly negotiated debt contracts. D. less price risk if interest rates change. E. All of the above.

E. All of the above.

Negative externalities exist in the depository sector when A. the fear of DI insolvency leads to bank deposit runs. B. lending activity is impaired or constrained. C. there are delays in disbursements from insolvent DIs. D. banks that are healthy suffer when another bank nears insolvency. E. All of the above.

E. All of the above.

The future viability of the savings association industry in traditional mortgage lending has been questioned because of A. securitization practices of other FIs. B. the additional risk exposure of long-term mortgage lending. C. intense competition from other FIs. D. the liquidity risks associated with mortgage lending. E. All of the above.

E. All of the above.

The number of funds and assets size of the mutual fund industry have grown dramatically since 1970 because of the introduction of A. money market mutual funds in 1972. B. tax-exempt money market mutual funds in 1979. C. special-purpose equity, bond, and derivative funds. D. 401-k retirement plans sponsored by employers. E. All of the above.

E. All of the above.

The reason FIs can offer highly liquid, low price-risk contracts to savers while investing in relatively illiquid and higher risk assets is A. because diversification allows an FI to predict more accurately the expected returns on its asset portfolio. B. significant amounts of portfolio risk are diversified away by investing in assets that have correlations between returns that are less than perfectly positive. C. because individual savers cannot benefit from risk diversification. D. because FIs have a cost advantage in monitoring their portfolios. E. All of the above.

E. All of the above.

Which of the following is one of the characteristics of household mutual fund owners as of 2012? A. The typical fund-owning household has $120,000 invested. B. 52 percent of the families are headed by someone without a college degree. C. The median age of mutual fund holders is 51. D. 21 percent of investors that conducted equity fund transactions used the internet. E. All of the above.

E. All of the above.

Which of the following might lead a consumer to seek a loan from a subprime lender? A. Inability to document their income. B. Have previously filed for bankruptcy. C. Has never had a loan before. D. Lack of savings for a down payment. E. All of the above.

E. All of the above.

Why do households prefer to use FIs as intermediaries to invest their surplus funds? A. Transaction costs are low to the household since FIs are more efficient in monitoring and gathering investment information. B. To receive the benefits of diversification that households may not be able to achieve on their own. C. The FI has can benefit from combining funds and negotiating lower asset prices and transactions costs. D. The FI can provide insurance at relatively low cost that will protect funds under management. E. All of the above.

E. All of the above.

Credit Unions were generally less affected than other depository institutions by the recent financial crisis because A. they had relatively more assets in consumer loans than other DIs. B. they had relatively more residential mortgages. C. they hold more government and agency securities, on average. D. they hold less government and agency securities, on average. E. Answers A and C only.

E. Answers A and C only.

An open-ended fund has stocks of three companies: 200 shares of IBM currently valued at $50.00, 100 shares of GE currently values at $20 and 100 shares of Digital currently valued at $30. The fund has 500 shares outstanding. What is the net asset value (NAV) of the fund? A. $30.00. B. $60.00. C. $120.00. D. $12.00. E. $37.50.

a. The assets in the mutual fund are worth $15,000. With 500 shares of the mutual fund outstanding, the NAV is $15,000 ÷ 500 = $30.00

Which of the following is NOT an advantage of a finance company over a commercial bank in providing services to small business customers? A. Finance companies are less willing to accept risky customers than are banks. B. Finance companies are not subject to regulations that restrict the type of products and services they can offer. C. Finance companies often have substantial industry and product expertise. D. Finance companies generally have lower overhead than banks. E. Finance companies do not accept deposits and therefore are not subject to bank-type regulatory restrictions.

A. Finance companies are less willing to accept risky customers than are banks.

Which of the following are used to link the hedge fund manager's incentives more closely to those of the fund investors and to reduce the manager's incentive to increase the risk of trades? A. High-water marks. B. Discount rates. C. Trade limits. D. Management fees. E. Low hurdle rates.

A. High-water marks.

Which of the following is true? A. Investment bankers earn fees based on the success of their placements when they underwrite using a best-efforts basis. B. Investment bankers earn fees based on the success of their placement when they underwrite using firm-commitment basis. C. With best-efforts underwriting, investment bankers act as principals because they purchase securities from the issuer and sell them at a higher price. D. An investment banker is acting as an agent when conducting a firm-commitment offering of securities. E. Answers B and C only. A. Investment bankers earn fees based on the success of their placements when they underwrite using a best-efforts basis.

A. Investment bankers earn fees based on the success of their placements when they underwrite using a best-efforts basis.

Which of the following is the practice that involves short-term trading of mutual funds seeking to take advantage of short-term discrepancies between the price of a mutual fund's shares and out-of-date values on the securities in the fund's portfolio? A. Market timing. B. Insider trading. C. Late trading. D. Directed brokerage. E. Spinning.

A. Market timing.

Which of the following two investment banks were acquired by financial services holding companies during the most recent financial crisis? A. Merrill Lynch and Bear Stearns. B. Goldman Sachs and Morgan Stanley. C. Bear Stearns and Lehman Brothers. D. Merrill Lynch and Morgan Stanley. E. Lehman Brothers and Goldman Sachs.

A. Merrill Lynch and Bear Stearns.

An investment banker agrees to underwrite an issue of 10 million shares of stock for Rochester Industries on a best-efforts basis. The investment banker is able to sell 8 million shares for $10.50 per share, and it charges Rochester Industries $0.225 per share sold If the investment bank were able to sell all 10 million shares for $12.75 per share, how much money does Rochester Industries receive? A. $127,500,000. B. $125,250,000. C. $105,675,000. D. $102,000,000. E. $99,000,000.

B. $125,250,000. Rochester Industries would receive $125,250,000 if 10,000,000 shares were sold for $12.75 per share. ($12.75 - 0.225) × 10,000,000 = $12.525 per share × 10,000,000 shares = $125,250,000.

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a firm commitment basis. The investment banker pays $31.50 per share to NetChoice, Inc. for the 5 million shares of stock. It then sells those shares to the public for $30.00 per share If the investment bank can sell the shares for $34 per share, how much money does NetChoice, Inc. receive? A. $150,000,000. B. $157,500,000. C. $112,000,000. D. $125,000,000. E. $105,000,000. It is a firm commitment offering so regardless of what the public pays, NetChoice receives $31.50 per share, $31.50 per share × 5,000,000 shares = $157,500,000

B. $157,500,000. It is a firm commitment offering so regardless of what the public pays, NetChoice receives $31.50 per share, $31.50 per share × 5,000,000 shares = $157,500,000

An investment banker agrees to underwrite an issue of 5 million shares of stock for NetChoice, Inc. on a firm commitment basis. The investment banker pays $31.50 per share to NetChoice, Inc. for the 5 million shares of stock. It then sells those shares to the public for $30.00 per share How much money does NetChoice, Inc. receive? A. $150,000,000. B. $157,500,000. C. $112,000,000. D. $125,000,000. E. $105,000,000

B. $157,500,000. NetChoice will receive $157,500,000 $31.50 per share × 5,000,000 shares = 157,500,000

Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding. To what level should the price of Microsoft shares decline in order for the NAV of Morningstar fund to remain constant if the price of P&G rises to $40? A. $60. B. $55. C. $50. D. $45. E. $40.

B. $55 If P&G increases to $40.00, the value of holdings in Microsoft must decrease by $1,000. $1,000 ÷ 200 shares = $5.00 decrease from its current price of $60.00 Also, total value of Microsoft in the portfolio must decrease by $1,000 to $11,000: $11,000 ÷ 200 shares = $55.00

Of the ten largest banks in the world at the beginning of 2012, how many were U.S. banks? A. 0. B. 1. C. 2. D. 4. E. 8.

B. 1

How have the innovations of global financial networks and computerized money and information transfer systems changed financial intermediation? A. Financial intermediation has become riskier because it is more difficult to stay informed about worldwide events. B. Financial intermediation has become more costly because it is necessary to invest in high cost technology. C. Financial intermediation has been unaffected. D. Financial intermediation has become more costly as global firms exploit economies of scale and scope. E. Financial intermediation has become less risky as firms become adept at maintaining zero gap positions.

B. Financial intermediation has become more costly because it is necessary to invest in high cost technology.

Which of the following two investment banks were granted approval to be chartered as commercial banks during the most recent financial crisis? A. Merrill Lynch and Bear Stearns. B. Goldman Sachs and Morgan Stanley. C. Bear Stearns and Lehman Brothers. D. Merrill Lynch and Morgan Stanley. E. Lehman Brothers and Goldman Sachs.

B. Goldman Sachs and Morgan Stanley.

An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share. If the investment bank can sell the shares for $9.75 per share, what is the profit (loss) to the investment banker? A. Profit of $1,000,000. B. Loss of $7,500,000. C. Profit of $7,000,000. D. Loss of $7,000,000. E. Loss of $1,000,000. The investment banker will have a loss of $7,500,000 ($9.75 - $10.50) × 10,000,000 = -$7,500,000

B. Loss of $7,500,000. The investment banker will have a loss of $7,500,000 ($9.75 - $10.50) × 10,000,000 = -$7,500,000

An investment banker agrees to underwrite an issue of 10 million shares of stock for TWResearch, Inc. on a firm commitment basis. The investment banker pays $10.50 per share to TWResearch, Inc. for the 10 million shares of stock. It then sells those shares to the public for $11.20 per share. If the investment bank can sell the shares for $9.75 per share, what is the profit (loss) to the investment banker? A. Profit of $1,000,000. B. Loss of $7,500,000. C. Profit of $7,000,000. D. Loss of $7,000,000. E. Loss of $1,000,000.

B. Loss of $7,500,000. The investment banker will have a loss of $7,500,000 ($9.75 - $10.50) × 10,000,000 = -$7,500,000

These "more risky" hedge funds aim to profit from changes in global economies, typically brought about by shifts in government policy that impact interest rates. A. Distressed securities funds. B. Macro funds. C. Value funds. D. Opportunistic funds. E. Market timing funds.

B. Macro funds.

What is the primary function of finance companies? A. Protect individuals and corporations from adverse events. B. Make loans to both individuals and corporations. C. Extend loans to banks and other financial institutions. D. Pool the financial resources of individuals and companies and invest in diversified portfolios of assets. E. Assist in the trading of securities in the secondary markets.

B. Make loans to both individuals and corporations.

Holdings of U.S. Treasury securities are classified on a DI's balance sheet as A. assets, because U.S. Treasury securities are default risk-free. B. liabilities, because the DI must pay cash in order to acquire the securities. C. assets, because securities holdings represent a use of funds for investment. D. liabilities, because the Treasury securities must be pledged as collateral against discount window borrowing. E. assets, because the market for U.S. Treasury securities is the most liquid in the world.

C. assets, because securities holdings represent a use of funds for investment.

The net asset value of a mutual fund is found by A. subtracting the daily market value of the fund's asset portfolio from the previous days' value. B. dividing the cumulative value of all asset positions held by the fund by the total number of asset shares held by the fund. C. computing the daily market value of the fund's total asset portfolio and then dividing this amount by the number of mutual fund shares outstanding. D. comparing the daily market value of the fund's total asset portfolio with that of its peers. E. subtracting expenses, commissions, and dividends from the fund's total asset portfolio.

C. computing the daily market value of the fund's total asset portfolio and then dividing this amount by the number of mutual fund shares outstanding.

The Community Reinvestment Act and the Home Mortgage Disclosure Act were both passed to provide incentives to comply with A. entry regulation. B. credit allocation regulation. C. consumer protection regulation. D. safety and soundness regulation. E. investor protection regulation.

C. consumer protection regulation.

A primary advantage for a depository institution of belonging to the Federal Reserve System is A. direct access to correspondent banking services. B. the lower deposit reserves required under the Federal Reserve System. C. direct access to the discount window of the Fed. D. commission less trading of U.S. government securities. E. decreased costs of regulatory compliance.

C. direct access to the discount window of the Fed.

The type of abusive activity that involves arrangements between mutual fund companies and brokerage houses is A. market timing. B. late trading. C. directed brokerage. D. improper fee assessment. E. None of the above.

C. directed brokerage.

Prior to the financial crisis that began in 2007, finance companies A. had experienced slow asset growth because of the upcoming economic slowdown. B. had found subprime lending to be a risk-free method to achieve growth. C. had experienced strong profit and loan growth, especially those companies that lend to less risky customers. D. had experienced strong success in the area of electronic lending. E. had avoided takeover attempts by other financial institutions.

C. had experienced strong profit and loan growth, especially those companies that lend to less risky customers.

The largest asset class on credit unions' balance sheet as of September 30, 2012 was A. cash. B. investment securities. C. home mortgages. D. checkable deposits. E. consumer credit.

C. home mortgages.

Advantages of depositing funds into a typical bank account instead of directly buying corporate securities include all of the following EXCEPT A. monitoring done by the bank on your behalf. B. increased liquidity if funds are needed quickly. C. increased transactions costs. D. less price risk when funds are needed. E. better diversification of deposited funds.

C. increased transactions costs.

Depository financial institutions include all of the following EXCEPT A. commercial banks. B. savings banks. C. investment banks. D. credit unions. E. all of the above are depository institutions.

C. investment banks