The main function of the investment dealer is to serve as:
a. the middleperson between the firm in need of funds and investors
b. underwriter
c. an advisor to the firm
d. a market maker
a. the middleperson between the firm in need of funds and investors
All of the following are typically key roles of the investment dealer except:
a. underwriter
b. market maker
c. broker
d. advisor to the firm
c. broker
The main organization used in distributing securities is:
a. the stock market
b. the underwriting syndicate
c. the primary market
d. the secondary market
b. the underwriting syndicate
The main function of syndicate members is:
a. acting as the agent of the firm
b. selling shares to the public
c. determining the spread
d. wholesaling shares to brokers and dealers
d. wholesaling shares to brokers and dealers
The spread may best be defined as:
a. the compensation due the lead underwriter
b. the total compensation for those participating in the distribution process
c. the price finally paid by the public for the shares
d. the proceeds from the distribution received by the firm
b. the total compensation for those participating in the distribution process
All of the following influence the price of a stock for the firm going public by way of an IPO except:
a. the previous share price
b. an in-depth company analysis
c. the P/E ratio for similar firms in the industry
d. anticipated public demand
a. the previous share price
When new shares in a public firm are to be issued, the price will normally be established:
a. at the current market price
b. slightly above the current market price
c. slightly below the current market price
d. at whatever price the market will bear.
c. slightly below the current market price
The major problem when a public firm issues new stock is:
a. pricing the security
b. underwriting the issue
c. determining the spread
d. the dilution of existing stock
d. the dilution of existing stock
One of the main reasons an initial public offering (IPO) may do well in the after market is:
a. stabilization by the underwriters
b. stabilization by the firm
c. public misconceptions of the firm's value
d. the security was underpriced
d. the security was underpriced
Perhaps the biggest change of all in the investment industry has been:
a. the consolidation of financial resources among a few large firms
b. the acquisition of retail brokerage firms
c. the increase in bond underwriting
d. the increasing generalization of investment firms
a. the consolidation of financial resources among a few large firms
Going public offers the firm many of the advantages listed below with the exception of:
a. security markets may be tapped for a greater amount of funds
b. the prestige of a public security may help in bank negotiations
c. marketable securities may be used for acquisitions
d. there is less pressure for short-term profits
d. there is less pressure for short-term profits
Private placement involves selling securities directly to:
a. insurance companies
b. pension funds
c. wealthy individuals
d. all of the above are correct
d. all of the above are correct
New equity financing is primarily done by way of a:
a. public offering
b. private offering
c. rights offering
d. leveraged offering
a. public offering
All of the following are characteristics of private placements except:
a. there are no securities commission filing requirements
b. there is less flexibility for the firm
c. initial costs may be lower than with a public issue
d. the interest rate is usually higher due to lower liquidity
b. there is less flexibility for the firm
Under a leveraged buy-out scenario, all of the following are true except:
a. a public firm is taken private
b. cash is borrowed to finance the purchase
c. equity is usually sold to pay off the debt
d. a corporate restructuring normally follows
c. equity is usually sold to pay off the debt
bought deals:
An issue of securities that has been pre purchased by an investment dealer. The investment dealer has thus guaranteed proceeds to the issuing corporation, and the investment dealer bears the risk of holding or selling the security issue.
dilutive effect on shares:
The potential reduction in market share value as additional shares are issued.
flotation cost:
The distribution cost of selling securities to the public. The cost includes the underwriter's spread and any associated fees.
going private:
The process by which all publicly owned shares of common stock are repurchased or retired, thereby eliminating listing fees, annual reports, and other expenses involved with publicly owned companies.
initial public offering (IPO):
The first time a corporation or government raises capital through the public markets.
investment dealer:
A financial organization that specializes in selling primary offerings of securities. Investment dealers can also perform other financial functions, such as advising clients, negotiating mergers and takeovers, and selling secondary offerings.
leveraged buyout:
Existing management or an outsider makes an offer to "go private" by retiring all the shares of the company. The buying group borrows the necessary money, using the assets of the acquired firm as collateral. The buying group then repurchases all the shares and expects to retire the debt over time with the cash flow from operations or the sale of corporate assets.
managing investment dealer:
An investment dealer who is responsible for the pricing, prospectus development, and legal work involved in the sale of a new issue of securities.
market maker:
Participants in the market who transact security trades over the counter from their own inventory of stocks and bonds. They are often referred to as market makers, since they stand ready to buy and sell their securities at quoted prices.
market stabilization:
Intervention in the secondary markets by an investment dealer to stabilize the price of a new security offering during the offering period. The purpose of market stabilization is to provide an orderly market for the distribution of the new issue.
private placement:
The sale of securities directly to a financial institution by a corporation. This eliminates the middleperson and reduces the cost of issue to the corporation.
public placement:
The sale of securities to the public through the investment dealer-underwriter process. Public placements must be registered with the provincial securities commission.
underwriting:
The process of selling securities and, at the same time, assuring the seller a specified price. Underwriting is done by investment dealers and represents a form of risk taking.
underwriting spread:
The difference between the price that a selling corporation receives for an issue of securities and the price at which the issue is sold to the public. The spread is the fee that investment dealers and others receive for selling securities.
underwriting syndicate:
A group of investment dealers formed to share the risk of a security offering and also to facilitate the distribution of the securities.
