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Chapter 11

1. Why do corporations employ investment bankers?

2. Identify the primary market functions of investment bankers.

3. Discuss how investment bankers assume risk in the process of marketing securities of corporations. How do investment bankers try to minimize these risks?

4. Briefly describe the process of competitive bidding and discuss the relative advantages and disadvantages.

5. Explain what is meant by market stabilization.

6. Identify the costs associated with going public.

7. Briefly describe how investment banking is regulated.

8. Describe the inroads into investment banking being made by commercial banks.

9. In 2003, several investment banking firms were fined $1.4 billion for ethics abuses

10. What are some of the characteristics of an organized securities exchange?

11. Describe the types of members of the New York Stock Exchange.

12. Why is there a difference between bid and ask prices at some point in time for a specific security?

13. Describe the differences among the following three types of orders: market, limit, and stop-loss.

14. What is meant by a short sale?

15. Describe the meaning of buying on margin.

16. What is meant by program trading?

17. Describe several differences between the organized exchanges and the over-the-counter (OTC) market.

18. What factors differentiate a “good market” from a “poor market”?

19. A security’s liquidity is affected by what influences?

20. Why may a stock trade that takes one second to execute be preferable to a trade that takes nine seconds to execute?

21. How do the third and fourth markets differ from other secondary markets?

22. What are some factors that influence the commission on a stock trade with a broker?

23. Give some examples of market indexes. Why are there so many different indexes?

24. What are American Depository Receipts (ADRs)?

25. Why is it illegal to trade on insider information?

26. What is Regulation FD and how does it affect security trading?

27. Visit the website of the CFA Institute, Type in the word “ethics” into the site’s search function. Discuss, in your own words, the ethics issues that the CFA Institute is analyzing or discussing.

28. Visit the website of the CFP Board, Type in the word “ethics” into the site’s search function. Describe a few of the pages that appear from the search.

29. What are the advantages of having a specialist-based or DMM (open outcry) trading system? An electronic trading system?

30. Discuss this statement: “Technology and globalization are two current forces impacting stock exchanges.”


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