FSI Quiz Questions with complete solutions

FSI Quiz Questions with complete solutions



1) What is the key thing that Equity Capital Markets (ECM) does? - answer-
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compromises where an issuer wants to price its securities versus where an investor
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wants to buy them so a stock can be priced
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1) How much of a company's valuation is offered in an IPO? Why?? - answer-no more
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than 20%, not to overwhelm the market with shares which will cause a downward
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pressure on the stock price once it breaks to trade. Scarcity increases value, can
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green shoe if needed
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1) What is an IPO discount and why is it employed? - answer-discount that is offered
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to IPO investors off of the intrinsic value of the share price. Its purpose is to build
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momentum in the secondary trading when it breaks to trade such that the stock will
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trade up and its price will increase. There is more value to an investor in buying a
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security at a discount versus a premium
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1) What is the difference between a Primary and a Secondary offering? - answer-A
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Primary offering raises money that will be used by the company in its operations. All of
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the proceeds are used by the company.
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A Secondary offering raises money that will be used to cash out existing shareholders.
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The proceeds go to existing shareholders and are not used by the company in its
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operations.
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1) Why would an investment bank be interested in M&A as a business? - answer-little
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capital, CEO centric, ancillary business
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1) Given the risks around M&A, why would a company pursue an M&A deal? - answer-
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preserves senior management, opportunity to achieve scale/strategic positioning that
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can offset the execution risks, change strategic direction for a company, If you are a
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PE firm, it is an opportunity to put capital to work or monetize a previous investment.
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1) Why would an IB be interested in defense advisory? - answer-It allows the IB to be
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imbedded in the company and have access to its senior decision makers as it is a
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long term assignment and very important to the company. While there, the advisory
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firm is in the pole position to be talking to the company about any
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acquisition/divestiture/strategic dialogue.
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