BUS F 255 Quiz
All of the following statements concerning cash flows are correct EXCEPT: investors are primarily looking for cash returns when investors put cash into a business, they are OK with getting back less than they put in dividend investors want dividends growth investors want stock price appreciation all of the above statements are correct
when investors put cash into a business, they are OK with getting back less than they put in
What was the approximate value of gold back in 1971? $15 an ounce $35 an ounce $125 an ounce $535 an ounce $1500 an ounce
$35 an ounce
Approximately what percentage of business-to-business payments are still made by check? 20% 30% 40% 50% 60%
50%
In hedge funds, the limited partners typically provide 99% of the capital- how much profits from the fund do they usually receive? 99 80 50 20 1
80%
What are the risks and rewards of working as a Research Analyst or Portfolio Manager on the buy-side?
A portfolio manager on the buy-side is one of the most sought out positions in investment management. A reward on the buy-side is that you are generally not working for today and you are taking more long term positions (unless you work for a hedge fund). The sell-side is trying to produce and communicate the best advice in a more daily manner while the buy-side is more long term. The sell-side is getting paid for the idea that they make today. On the other hand, a buy-side Portfolio Manager has a longterm plan in making money and their bonus is much higher if they make a very successful trade. They are not just providing the advice but rather, they are taking action on the advice given to them. They are generating returns on their investment decisions. This also becomes a risk because they are taking positions with the advice that could have ramifications. It is extremely high risk because you are investing other people's money but it becomes a high reward if you make returns on the investments.
What function of an investment bank is responsible for market making activities? research capital markets private wealth management institutional sales Agency (Client-Related) Trading
Agency (Client-Related) Trading
Which of the following can involve real estate activities and/or expertise? Corporate Finance Consulting Capital Markets Investment Banking All of the above
All of the above
Buy-side firms consist of which of the following? Mutual Funds Hedge Funds Pensions Funds All the above
All the above
The purpose of the Prime Brokerage group of an investment bank is? To provide margin financing to investors To loan securities to investors To provide lending in the form of repurchase agreements All the above
All the above
In investment banking, the primary role of the __________ is to perform basic research and financial analysis? Analyst Associate Vice- President Managing Director
Analyst
Which of the following is not a part of GIPSI? Greece Ireland Portugal Sweden Italy
Sweden
Which investment management position is typically the most sought after position by professionals working in investment management? Trading Clerk Portfolio Manager Research analyst Trading Analyst Investment Banking Vice President
Portfolio Manager
The division of an investment bank that is closely aligned with Private Wealth Management would be? Institutional Sales Capital Markets Research Asset Management
Asset Management
Most analyst would suggest that a DCF would provide the best estmate of "intrinsic" value for a business. Why?
Because a DCF is formula based and relates purely to fundamental free cash flow of the business which over time represents what an investor will receive in return for their ownership. A DCF is not skewed by market conditions and theoretically represents the fundamental or intrinsic value of a business regardless of market conditions.
Who is primary responsible for setting a company's objectives and making sure that they meet those objectives? - Board of Directors - Rank and File Employees - Senior Management - Bondholders and Lenders
Board of Directors
Current and future financial resources that can be committed to pay obligations are referred to as: Character Capacity Capital Collateral Conditions
Capacity
Which division of an investment bank is responsible for the underwriting of stocks, bonds, and derivative securities? Investment Banking Capital Markets Research Institutional Sales Prime Brokerage
Capital Markets
If you were interested in working with corporations to help them raise capital (debt and equity) to finance their business, which workshop would be best for you? Wealth Management Investment Management Capital Markets and Banking Investment Banking Consulting
Capital Markets and Banking
What is the term typically used to indicate the mix of debt and equity on a company's balance sheet
Capital Structure
Which of the following items is NOT considered a common measure of cash flow? - Free Cash Flow - Cash on the Balance Sheet - EBITDA - Operating Cash Flow
Cash on the Balance Sheet
If you were interested in working with companies who needed an outside perspective to help them asses and solve their business problems, which workshop is the best for you? Wealth Management Investment Management Capital Markets and Banking Investment Banking Consulting
Consulting
Which of the following statements concerning DDAs is TRUE? DDA stands for Direct Deposit Account DDAs may be interest bearing or non-interest bearing A DDA is only a store of value, it cannot be used to transfer funds A DDA is not protected by deposit insurance A DDA is considered to be a non-curent asset
DDAs may be interest bearing or non-interest bearing
What does EBITDA stand for?
Earnings before interest, taxes, depreciation, and amortization
Most financial intermediaries are conflicted in advising their clients. Explain.
FIs usually have a conflict in serving two clients that arguably have opposite interest. Investment banks as an example have an obligation to corporate clients to underwrite corporate securities at the highest price possible, but also have an obligation to investors to buy for their account corporate securities at the lowest price. Regardless, for any consultant or adviser, there is a conflict in fee paid for services; advisers tend to want to generate a fee even though a transaction might not be in the client's best interest
If you were interested in becoming an equity analyst, helping determine the value for stocks or wanting to manage large portfolios for institutional invests, which workshop would be best for you? Wealth Management Investment Management Capital Markets and Banking Investment Banking Consulting
Investment Management
Why are good businesses sold?
Good businesses are sold for many reasons. One of the simplest reasons is because the owner wants to. The long term goal of an owner is the grow the business and then sell it at the highest price. However, along the process, the owner might get old and may not want to continue the business any longer. Another reason could be that the owner simply does not have the capital, management or resources to expand their businesses. To continue to grow his/her business, they need help from other companies that may have different expertise in other industries that make their business more profitable in the long run.
Which of the following entities are most likely to become activist investors? - Hedge Funds - Money market Funds - Bond Funds - Index Funds - Passive Mutual Funds
Hedge Funds
Which of the following entities would NOT typically invest in high-risk investments? High Net Individuals Institutional Investors Hedge Funds Investment Banks
Institutional Investors
If you were interested in developing deals for mergers and acquisitions of companies, which workshop would be best for you? Wealth Management Investment Management Capital Markets and Banking Investment Banking Consulting
Investment Banking
Which of the following statements is NOT an accurate description of the income statement? - It shows value of all assets and liabilities at a specific point it time - it can be used to determine common measures of operating profit such as EBIT - it should shows a company realizes net profit after taking into account all its revenuers and costs it is used to measure the ongoing operations of the firm
It shows value of all assets and liabilities at a specific point it time
A hedge fund that takes directional bets on the market as a whole (either long o short) based on research and/or the fund's philosophy is known as? Long-Short Fund Market Neutral Fund Event-Driven Fund Macro Fund
Macro Fund
Which of the following would produce the highest valuation in normal economic and market conditions? - Discounted Cash Flow Analysis - Market (Trading) Comparable Analysis - Precedent Transactions Analysis - Leverage Buyout Analysis - Football Field Analysis
Precedent Transactions Analysis
The two primary requirements to be successful in finance are:
Obscurity and Perseverance
The term used on balance sheet to indicate the ownership in the company is:
Owner's Equity
The ratios used to measure a firm's profitability in relation to revenues and/or investment are known as what? - Liquidity - Debt Management - Performance - Asset Management
Performance
The two types of financings within the capital market functions of an investment bank are Public offerings and commercial paper Public offerings and private placements Public offerings and asset-backed securities Bond offerings and credit default swaps Bond offerings and syndicates
Public offerings and private placements
All of the following are challenges to corporate governance, EXCEPT: - separation of ownership and control -management perks - Regulators - Agency problems
Regulators
The DuPont framework is a useful way to understand the levers of
Return on Equity
The trend in Finance has been focusing on __________ in the 1960s to focusing to _________ in the 2020s.
Revenues, free cash flow
When pension funds learned to add real estate to the portfolio mix of pension funds and other institutional investors. Risk increased s return on investment decreased Risk stayed the same as return on investment increased Risk decreased as return on investment decreased Risk decreased as return on investment increased Risk decreased as return on investment stayed the same
Risk decreased as return on investment increased
What are the advantages of Direct Listing?
broad access to investment capital, the ability to raise capital from different types of investors, the ability to use stock to complete acquisitions. It provides more liquidity. you can also save underwriting fees
Explain the conflict of Interest that Agency (Client- Related) Traders have the work for investment banks?
The job as an agency trader is to trade on behalf of the client's wishes. Their job is to buy it at the cheapest price. They help the investor manage the investment activity to find the lowest possible price for the buyer or the highest possible price for a seller. One of their other main responsibilities is to help companies during an IPO process and this requires them to hold inventory in the industry that they are tracking. They do this to smooth the volatility that could arise from a company issuing its stock for the first time. However, because of this, they have a very big conflict of interest. Their job is to help possible clients buy low and sell high. But, they are also managing an inventory for the Investment Bank where they also want to create a profit. The more profit that they make, the higher the bonus they will receive at the end of the year.This conflicts with their client fiduciary duties. In turn, it creates an inherent conflict of interest for Client Related Agency Traders.
What does TANSTAAFL stand for?
There ain't no such thing as a free lunch
The personality traits of multitasking, self confidence, efficiency and social competence are examples of which key attributes to a great finance professional? - behavioral - academic - business thorough process - opportunistic
behavioral
Which Division of the following would be considered a disadvantage of equity financing from the perspective of the corporate financial manager? Underwriting costs of new common stock are often significant Common stock does not obligate a company to make fixed payments to investors Common stock does not mature For creditors, the stock offers a cushion against losses If a company is profitable, additional stock can be sold at attractive terms to the issuer
Underwriting costs of new common stock are often significant
If you wanted a career helping individuals with their investment portfolios and retirement plans, which workshop would be the best for you? - Investment Management - Wealth Management - Investment Banking - Capital Markets and Banking
Wealth Management
If you were interested in a career working with individual ad helping them with their investment and financial needs, which workshop would be the best for you? Wealth Management Investment Management Capital Markets and Banking Investment Banking Consulting
Wealth Management
Which of the following would be considered a full service Investment Bank? Wells Fargo William Blair Old National Bank Evercore Moelis & Co.
Wells Fargo
In what way are Research Analyst and an Agency (Client Related) Trader Similar both specialize in an industry or sector both are the primary communication link to the buy side both specialist in an industry or sector both invest in hedge funds none of the above
both specialist in an industry or sector
Which of the following is NOT a typical reason to begin a sell side MA process? a company requires more capital resources a company has a non core asset that is distracting management a company is generating too much free cash flow a private equity sponsor needs to exit their investment to return capital to limited partners (LPs)
a company is generating too much free cash flow
Which of the following are "Buy- side Firms"? - a corporation like GE - an investment bank like Goldman Sachs - a pension fund like TIAA-CREF - a private equity firm like KKR - all of the above are Buy-side firms
a pension fund like TIAA-CREF
Which of the following statements concerning accountant versus finance is most correct? - accounting always wants to err on the side of optimism - finance and accounting are in full agreement in all areas - accounting rules do NOT take into account economic realities - accounting figures and cash flows are often NOT in sync
accounting figures and cash flows are often NOT in sync
One of the problems of suing a Market (trading) Comparable Valuation Analysis is that: - there is never a perfect comparable - not all comparable companies are public companies with public information - that comparable analysis is market based and could be skewed by irrational exuberance - all of the above adequately answer this question - non of the above
all of the above adequately answer this question
The primary reasons for private company to go through the rigors of an IPO is to create acquisition currency to raise cash from the public markets to enhance the company's profile and other marketing benefits liquidity of shareholders all of the above adequately complete this sentence
all of the above adequately complete this sentence
Regarding hedge fund regulator environment, which of the following is correct? unlike mutual funds, hedge funds are not subject to the same regulation depending on the funds under management, the total number of qualified invests, some hedge fund manages may not be required to register with the SEC hedge funds are subject to the same prohibitions against fraud hedge fund managers owe a fiduciary duty to the funds they manage all the above
all the above
Which of the following items is the most appropriate to use for applying time value of money to future cash flows? - opportunity cost - cost of capital - discount rate - required rate of return - all the above
all the above
Which of the following are FALSE regarding a buy side MA engagement? They are typically hired by PE firms Part of their job is to minimize the acquisition purchase price they must be a "quarterback" the process and close the transaction they may recommend a company do nothing and stay the course all the above are true
all the above are true
Which of the following is not true concerning Greece and their economic problems as of 2018? Greece owes the EU and IMF approximately EUR 290 billion To finance the debt, the government must run a budget surplus through 2060 the level of public debt is about 180% of their GDP The Greek economy has shrunk 25% since the beginning for the crisis all the above are true
all the above are true
An advantage of flexible or floating foreign exchange (FX) rates is that they: require countries to hold large levels of international reserves are inherently inflationary discourage flows of foreign trade and investment allow countries to maintain independent economic policies
allow countries to maintain independent economic policies
A series of cash flows where the same cash flow occurs every period is known as - uneven cash flow stream - annuity - free cash flow - depreciation
annuity
Which is the primary type of retirement plan offered by US companies to their employees today? social security defined benefit plan defined contribution plan most companies do not offer retirement plans to their employees
defined contribution plan
Sell Side MA advisors primary job is to crunch numbers to properly value a company and do market research determine who can pay the highest valuation for their client and close that transaction lead the road show by taking their client to multiple institutional investors write the S-1 registration statement write the private placement
determine who can pay the highest valuation for their client and close that transaction
The Glass Steagall Act of 1933 did all of the following, EXCEPT: separated commercial banking from investment banking created the FDIC stabilized capital markets established the national banking system in the US
established the national banking system in the US
Which of the following is a visual summary of several analyses? - sum of parts analysis - comprehensive review analysis - comparable companies analysis - football field analysis -none of the above
football field analysis
According to Grant's "Basics of Apprenticeship", people who are long term investors in relations and care more for others than they do themselves are known as: - matchers - losers - givers - takers
givers
Relative to a by-side MA transaction, a sell side MA transaction has a higher probability of closing is more strategic in nature has a longer term time horizon
has a higher probability of closing
Which of the following statements concerning hedge funds is NOT correct? hedge funds generally invest in public companies and may acquire large minority stakes, which may give some influence over the company's board hedge funds had access to and reply on publicly available information for the companies they invest in hedge funds usually require long-term illqiuid commitments for a finite period, with little or no borrowing within the fund hedge fund mangers are often rewarded for quarterly increase in value of the portfolio they manage
hedge funds usually require long-term illqiuid commitments for a finite period, with little or no borrowing within the fund
Which of the following statements concerning time value of money is most correct? the present value of cash flow is always greater than the future value of cash flow the shorter the number of periods, the greater is the future of an investment made today if you know 4 out of the 5 time value variables, you can always calculate the missing one it is impossible to do time value calculations in an excel spreadsheet
if you know 4 out of the 5 time value variables, you can always calculate the missing one
Based on our class discussion, what do you think the primary goal if a firm's management should be? - get today's today price as high as you can, no matter what you have to do - increase the economic value of the business to benefit all key stakeholders - make the firm the biggest one in the industry - maximize the compensation to senior management team (CEO, COO, CFO)
increase the economic value of the business to benefit all key stakeholders
Which of the following statements about the Statement of Cash Flows is most correct? - it has three key parts: Assets, Liabilities and Equity - it provides a reconciliation between net profit and change in cash on the balance sheet - sources of funds represent money floating OUT of a firm Most finance professionals do NOT think this is a very important statement
it provides a reconciliation between net profit and change in cash on the balance sheet
What would be the primary reason for using DuPont framework for analyzing a company? - it takes into account profitability, productivity, and leverage - it primarily focus on productivity - it primarily focuses on profitability -it primarily focuses on leverage
it takes into account profitability, productivity, and leverage
The ratio that measures a firm's ability to meet its payment obligations and cash management efficiency are known as what? - performance - liquidity - debt management - asset management
liquidity
Which of the following is NOT a typical debt covenant? maximum allowable liquidity ratio maximum allowable debt ratio minimum allowable coverage ratio limitations on increased debt conditions to be met before dividends are paid
maximum allowable liquidity ratio
Should people go into finance for the money?
no, they need to have a passion for making the deal. If someone just does it for the money, they will not be good at their job and eventually be fired
Explain how the rise of Family Office has become a challenge for traditional PE firms?
people are making their own business and managing their own money and buying businesses and investing PE firms used to get this clientele but are now competing with family offices to buy businesses
Which of the following sell-side MA processes would result in the highest selling price? preemptive negotiated sale targeted solicitation controlled limited auction public auction none of the above
public auction
All of the items below would be considered industry/coverage areas of an investment bank, except: financial institution energy restructuring industrial technology
restructuring
For hedge funds, the term short selling refers to using margin loans to leverage the fund selling securities to a third party and agreeing to buy them aback on a specific date at a higher price selling securities borrowed from third parties with the hope of buying them later at a lower price using options, swaps, futures, which also expand risk taking and magnification principles
selling securities borrowed from third parties with the hope of buying them later at a lower price
Alternative Energy Company who wants to complete IPO (Deal Team)
someone from energy sector and bankers in the equity capital markets
Which financial statement provides reconciliation of net income back to the change in cash for an organization? -income statement -balance sheet -statement of retained earnings - statement of cash flows
statement of cash flows
Explain the concept of securitization. is it helpful?
the concept is repackaging non-traded financial instruments through the formation of a pool against which they are being traded. It is beneficial because it provides liquidity and it reduces the liquidity risk in the financial system
Which of the following statements about Cash Conversion Cycle are correct, EXCEPT: - the cash conversion cycle is calculated as days o investors plus days of receivables minus days of payable - the conversion cycle can never be negative - day of receivables reflects the time it takes to collect money from credit sales - days of inventory measures how long it takes to convert raw materials into a sale of finished goods
the conversion cycle can never be negative
What is they key requirement for a country to have a sovereign wealth fund? - the country must have king or queen - the country must be located in Middle East or Africa - the country must have a parliamentary form of government - the country must have budget surplus
the country must have budget surplus
According to be World of Finance charts we discussed in class, all of the following statements are correct EXCEPT: - the buy side (mutual, funds and hedge funds) are primarily providers of funds to the "corporate" side - the corporate side (real estate firms, corporations) are primarily the ones who need funds and capital - one of the primary role of investment banks is help with the flow of funds from the buy side to the corporate side - the primary purpose of the Chinese wall is to increase investment bank profits
the primary purpose of the Chinese wall is to increase investment bank profits
When completing an IPO, the "Road Show" is part of: due diligence drafting the beauty contest the selling process
the selling process
Which of the following statements concerning private equity is NOT correct? they usually allow borrowing within the fund and thus have a risk of bankruptcy the investments are illiquid- private equity funds cannot generally sell a portion of their investments and reply a seal of an entire company to achieve capital gain fund managers invest in the fund they manage and share aggregate realized profits of the fund over its whole like through "carried interest" private equity fund managers receive wife ranging commercially sensitive (inside information) from each company the fund invested in
they usually allow borrowing within the fund and thus have a risk of bankruptcy
What is the primary purpose of Brady Bonds? to pay for college education of Brady Bunch to help solve the Asian Debt Crisis to help solve the Latin american debt crisis to help solve the Greek debt crisis to help solve the Irish debt crisis
to help solve the Latin american debt crisis
Describe the process of "shorting" a stock and why you would do it?
to short a stock, you borrow shares today and sell them today. You are hoping that when you have to "repay" the shares, you can buy them at a cheaper price. You do this is you think the price of the stock is going down. They do this to manage risk because now they are only exposed to out performance of under performance of a company's stock.
Which of the following statements concerning hedge funds and private equity is the most correct? private equity funds typically do not own a substantial or controlling stake in a business hedge funds usually have access to, and reply on private, non public formation on the companies in which they invest private equity funds will not usually undertake substantial due diligence to making an investment traditionally, hedge funds make returns from a series of related trading portions, rather than a single investment decisions
traditionally, hedge funds make returns from a series of related trading portions, rather than a single investment decisions
The type of FX exposure that occurs when a company has an account payable or accounts receivable denominated in a foreign currency is known as: transaction exposure accounting exposure translation exposure economic exposure double exposure
transaction exposure
Regarding the debt crisis in Greece, which of the following would be true if they had their own currency rather than the Euro? no change- same crisis under a financial crisis, their currency could have devalued making imports more expensive and their exports more attractive to other countries they would have had more control over their monetary policy, byt lost control of their fiscal policy they would have borrowed in US dollars which would have made the problems even worse None of the above would be true
under a financial crisis, their currency could have devalued making imports more expensive and their exports more attractive to other countries
