FIN 420 EXAM 1 QUESTIONS AND ANSWERS
US Treasury - Answers :Govt. Entity (fiscal)
Federal reserve - Answers :independent entity (monetary)
R_1 --> "risk free" - Answers :can always pay off the debt by printing money or taxing
citizens
Security - Answers :financial instrument that bears a claim on a financial asset such as
stock (equity) or bonds (debt/liability)
Owe + Owners - Answers :Own
Bondholders are paid interest before stockholders receive - Answers :their dividends.
Primary market - Answers :facilitate initial sale of security into public marketplace, most
often an investment banker utilized to bring securities to the marketplace.
Investment banker functions - Answers :advise firm on raising LTC by issuing stocks
and bonds; distributing new securities; buying securities from issuers, selling to the
public, distributing large blocks of stock; issue securities in compliance w/ securities
laws
Red herring - Answers :Preliminary prospectus
Prospectus - Answers :Offering document
Green shoes - Answers :The right to increase the size of an offering
Secondary offering - Answers :A secondary offering by company insiders or other
affiliates
Managing underwriter (lead underwriter) - Answers :The lead investment banker
Syndicate - Answers :A group of investment banking companies that participate in the
IPO
Selling group - Answers :Brokerage firms that take part in selling the initial offering
Secondary market - Answers :the buying and selling of existing securities between
investors.
The New York Stock Exchange (NYSE) is one of the largest exchanges (auctions) for -
Answers :listed stock securities. Other exchanges include the National Association of
Securities. Dealers (Nasdaq) and regional exchanges in Philadelphia and Chicago.
, Public float indicates - Answers :the number of shares that are available to the public.
Some stock is by company insiders and are restricted from being sold.
A trader is interested in buying a stock. Currently, the stock is trading in the market at
$25.00. The trader is satisfied with this price. What type of order should the trader
place? - Answers :Limit order - ensures well get this stock at this price
Private placements - Answers :Stocks and bonds placed by private parties. They are
not traded on a public exchange and limited to 35 unaccredited investors.
What is an accredited investor? - Answers :Rule 501 of Regulation D defines an
accredited investor as: - A trust, charitable organization, employee benefit plan with $5
million in assets - An individual with $1 million net worth (excluding the home), or
$200,000 income in the last two years ($300,000 if married)
Venture capital - Answers :Private fund raising for privately held companies, often start-
ups or early stage companies.
Private Equity - Answers :Private fund raising for private companies that need capital to
expand or attempt to turn around a company producing poor results.
▪ Federal Deposit Insurance Corporation (FDIC) - Answers :The FDIC is an independent
company created by Congress to instill trust in the financial system. Currently $250,000
of cash is guaranteed by the FDIC if a bank fails.
▪ Securities Investor Protection Corporation (SIPC) - Answers :(Look for this at your
brokerage where you are buying securities.) The SIPC is a non-profit corporation that
protects consumers if their brokerage firm fails. Currently up to $500,000 in securities is
protected including $250,000 in cash. It does not protect consumers from their personal
poor investment choices.
Yield curve - Answers :yield against maturity for a certain bond instrument (yield %)
The Federal Reserve exercises monetary policy at the short end of the Treasury yield
curve by - Answers :targeting a certain Federal Funds Rate (FFR). The Federal Funds
Rate is the rate that banks charge each other overnight to borrow and lend funds to
settle their accounts. The FFR is generally slightly higher than a short-term Treasury.
One way the Federal Reserve manipulates the FFR is by buying and selling Treasurys.
Loosening Monetary Policy: - Answers :The Federal Reserve buys Treasurys which
increases the money supply and reduces the FFR. This will decrease interest rates in
the financial market.
US Treasury - Answers :Govt. Entity (fiscal)
Federal reserve - Answers :independent entity (monetary)
R_1 --> "risk free" - Answers :can always pay off the debt by printing money or taxing
citizens
Security - Answers :financial instrument that bears a claim on a financial asset such as
stock (equity) or bonds (debt/liability)
Owe + Owners - Answers :Own
Bondholders are paid interest before stockholders receive - Answers :their dividends.
Primary market - Answers :facilitate initial sale of security into public marketplace, most
often an investment banker utilized to bring securities to the marketplace.
Investment banker functions - Answers :advise firm on raising LTC by issuing stocks
and bonds; distributing new securities; buying securities from issuers, selling to the
public, distributing large blocks of stock; issue securities in compliance w/ securities
laws
Red herring - Answers :Preliminary prospectus
Prospectus - Answers :Offering document
Green shoes - Answers :The right to increase the size of an offering
Secondary offering - Answers :A secondary offering by company insiders or other
affiliates
Managing underwriter (lead underwriter) - Answers :The lead investment banker
Syndicate - Answers :A group of investment banking companies that participate in the
IPO
Selling group - Answers :Brokerage firms that take part in selling the initial offering
Secondary market - Answers :the buying and selling of existing securities between
investors.
The New York Stock Exchange (NYSE) is one of the largest exchanges (auctions) for -
Answers :listed stock securities. Other exchanges include the National Association of
Securities. Dealers (Nasdaq) and regional exchanges in Philadelphia and Chicago.
, Public float indicates - Answers :the number of shares that are available to the public.
Some stock is by company insiders and are restricted from being sold.
A trader is interested in buying a stock. Currently, the stock is trading in the market at
$25.00. The trader is satisfied with this price. What type of order should the trader
place? - Answers :Limit order - ensures well get this stock at this price
Private placements - Answers :Stocks and bonds placed by private parties. They are
not traded on a public exchange and limited to 35 unaccredited investors.
What is an accredited investor? - Answers :Rule 501 of Regulation D defines an
accredited investor as: - A trust, charitable organization, employee benefit plan with $5
million in assets - An individual with $1 million net worth (excluding the home), or
$200,000 income in the last two years ($300,000 if married)
Venture capital - Answers :Private fund raising for privately held companies, often start-
ups or early stage companies.
Private Equity - Answers :Private fund raising for private companies that need capital to
expand or attempt to turn around a company producing poor results.
▪ Federal Deposit Insurance Corporation (FDIC) - Answers :The FDIC is an independent
company created by Congress to instill trust in the financial system. Currently $250,000
of cash is guaranteed by the FDIC if a bank fails.
▪ Securities Investor Protection Corporation (SIPC) - Answers :(Look for this at your
brokerage where you are buying securities.) The SIPC is a non-profit corporation that
protects consumers if their brokerage firm fails. Currently up to $500,000 in securities is
protected including $250,000 in cash. It does not protect consumers from their personal
poor investment choices.
Yield curve - Answers :yield against maturity for a certain bond instrument (yield %)
The Federal Reserve exercises monetary policy at the short end of the Treasury yield
curve by - Answers :targeting a certain Federal Funds Rate (FFR). The Federal Funds
Rate is the rate that banks charge each other overnight to borrow and lend funds to
settle their accounts. The FFR is generally slightly higher than a short-term Treasury.
One way the Federal Reserve manipulates the FFR is by buying and selling Treasurys.
Loosening Monetary Policy: - Answers :The Federal Reserve buys Treasurys which
increases the money supply and reduces the FFR. This will decrease interest rates in
the financial market.
