Chapter 7 Primary and Secondary Markets

Test Questions

1. The ________ involves the distribution to investors of newly issued securities by central
governments, its agencies, municipal governments, and corporations
A) OTC market B) secondary market C) primary market D) stock market
2. The participants in the marketplace that work with issuers to distribute newly issued securities are
called investment bankers. Investment banking is performed by two groups: ________.
A) commercial banks and securities houses. C) commercial banks and bank houses
B) hometown banks and securities houses. D) savings & loans and bank houses.
3. The traditional process in the United States for issuing new securities involves investment bankers
performing up to three functions. Which of the below is NOT one of these functions?
A) One function is advising the issuer on the terms and the timing of the offering.
B) One function is selling the securities to the issuer.
C) One function is distributing the issue to the public.
D) One function is buying the securities from the issuer.
4. An investment banker may merely act as an advisor and/or distributor of the new security. The
function of buying the securities from the issuer is called ________.
A) advising. B) distributing C) purchasing. D) underwriting
5. An ________ is a common stock offering issued by companies that have NOT previously issued
common stock to the public.
A) initial private issuance (IPI) C) ) initial public offering (IPO)
B) seasoned equity offering (SEO) D) seasoned offering (SO)
6. The type of information contained in the registration statement includes ________.
A) the nature of the business of the issuer and key provisions or features of the security.
B) the nature of the investment risks associated with the security and the background of
management.
C) the nature of the business of the issuer and the background of management.
D) All of these
7. The registration is actually divided into two parts. Part I is the ________. It is this part that is
typically distributed to the public as an offering of the securities. Part II contains ________, which is
not distributed to the public as part of the offering but is available from the SEC upon request.
A) registration; additional information
B) prospectus; supplemental information
C) supplemental information; registration
D) beginning information; prospectus
8. Refers to a method where the issuer announces the terms of the issue, and interested parties
submit bids for the entire issue.
A) Subscription process B) Bought deal C) Auction process
9. It is the price at which new shares can be purchased is called
A) Bid price B) Ask price C) Subscription Price
10. It is a third party in trade that acts on behalf of a buyer or seller who wishes to execute an order.
A) Broker B) Dealer C) Natural buyer D) Natural Seller

11. It is an entity that acts as an intermediary in a trade by buying and selling for its own account.
A) Broker B) Dealer C) Natural buyer D) Natural Seller
12. It is the simplest type of order executed at the best price available.
A) Limit order B) Board lot C) Market order
13. It permits certain issuers to file a single registration document indicating that it intends to sell a
certain amount if a certain class of securities at one or more times
a. Preregistration securities c. Coverage registration rule
b. shelf registration d. Comprehensive registration
14. Thesingle registration document indicating that it intends to sell a certain amount if a certain class of
securities at one or more times within the next ______.
a. one year b. two years c. 3 years d. five years.
15. It is small-offering exemption specifically applies if the offering is for $1 million or less, then the
securities need not be registered.
a.Pre-emptive rights c. Private placements
b. IPO d. Warrants
____4. the issuer announces the terms of the issue, and interested parties submit bids for the entire issue,
this is called
a. auction process c. Pre-emptive rights offering
b. bought deal d. Fund raising process
____5. A corporate borrower who seeks reduced funding costs is seeking to reduce the _______
a. amount for fund raising c. spread
b. the interest expense d. exposure
____ 6. It is said to be an “agent” of the one of the parties to the trade.
a. fund manager b. broker c. market maker d. dealer
____7. In these markets all of the participants in the trade are natural buyers and natural sellers and
there is no dealer acting as an intermediary.
a. auction-market b. inter-market c. quote-driven market d. bid and ask market
____8. It is an order-driven market which orders are batched or grouped together for simultaneous
execution at preannounced times
a. bid/ask auction b. price-scan auction c.periodic call auction
____9. An efficient market where investors can obtain transaction services as cheaply as possible,
a.price efficient b.operationally efficient market c transaction cost efficient

True or false
______1. a bought deal is used solely for equity securities. False
______ 2. To seek funds in foreign markets is a desire by corporate treasurers to diversify their source of
funding in order to reduce reliance on domestic investors. T
_______3. The secondary market the issuer of the asset and receive funds from the buyer. . False
______4. The products traded on an exchange are approved by the directors of the exchange. T
______5. In a margin transaction, the broker is free to lend as much as it much as it wishes to the
investor to buy securities. F
______6. An investors must have a share in order to do short sell transaction. False
1. A preemptive right grants new shareholders the right to buy the new shares issued.false
2. For the shares sold via pre-emptive rights offering, the underwriting services of an investment
banker are not needed. True
3. The danger of a market order is that it comes with no guarantee it will be executed at all. False
4.