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Lesson #14 Quiz >> Financial Markets

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 Why was the Glass-Steagall Act of 1933 repealed in 1999?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.

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