Lesson #14 Quiz >> Financial Markets
1. Which of the following two options are deals that underwriters make with corporations?
- Best efforts: the underwriters tries to sell shares at some price, and the deal collapses if they don’t.
- Short cut: the underwriters will cut the price of the shares if some of them remain unsold.
- Loss safe: the underwriter will pay a penalty to the company if not all of the shares sell.
- Bought deal: the underwriter will purchase all unsold shares.
2. Why do underwriters usually underprice IPOs?
- They don’t know how much the company is really worth
- They want to create public excitement
- They do not want the company to make as much money as it could.
- They want their favorite customers to be able to buy shares for cheaper
3. Which of the following was NOT a feature that Charles Ellis believed made Goldman Sachs successful?
- Becoming prestigious
- Making money
- Absolute loyalty to the firm
- Personal anonymity
4. What is a rating agency?
- Any agency which refuses to take money from corporations for rating their securities.
- An agency which assigns credit scores to individuals.
- An agency which rates the business practices of corporations.
- An agency which publishes its ratings on the reliability of securities.
5. Why was the Glass-Steagall Act of 1933 repealed in 1999?
- American banks claimed that it made it hard to compete with European banks, which offered both investment and commercial banking services.
- Investment banking was too costly for some companies, which could not manage both investment and commercial banking services.
- Investors felt inconvenienced that a single bank could not function as both an investment and a commercial bank.
- It was ruled unconstitutional by the supreme court.
6. What were the two biggest assets of the average (not median) US household in 2015?
- Real estate and mutual funds
- Real estate and corporate equities
- Mutual funds and corporate equities
- Real estate and pension funds
7. Which best describes the “prudent person” rule?
- A new rule for fund managers which is starting to apply to newer regulations.
- A law which mandates that investment managers must do what another educated, experienced investment manager might do in a similar circumstance.
- A law which limits the amount of risk with which funds managers may invest money
- A guideline that individuals should look for funds managers who show prudence.
8. Which of the following is NOT true of mutual funds?
- Mutual funds are closed end funds.
- They are defined and regulated by the SEC.
- You join the fund at 4:00 PM on the day you decide to invest.
- Massachusetts Investment Trust was an early model for mutual funds in the US.
