Financial Markets Lesson 14 Quiz Answer

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Week 6

Q1) Which of the following two options are deals that underwriters make with corporations?

Short cut: the underwriters will cut the price of the shares if some of them remain unsold.
Best efforts: the underwriters tries to sell shares at some price, and the deal collapses if they don’t.
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.

Q2) Why do underwriters usually underprice IPOs?

Q3) Which of the following was NOT a feature that Charles Ellis believed made Goldman Sachs successful?

Q4) What is a rating agency?

Any agency which refuses to take money from corporations for rating their securities.
An agency which publishes its ratings on the reliability of securities.
An agency which assigns credit scores to individuals.
An agency which rates the business practices of corporations.

Q5) Why was the Glass-Steagall Act of 1933 repealed in 1999?

Investment banking was too costly for some companies, which could not manage both investment and commercial banking services.
American banks claimed that it made it hard to compete with European banks, which offered 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.

Q6) What were the two biggest assets of the average (not median) US household in 2015?

Q7) 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.

Q8) Which of the following is NOT true of mutual funds?