BAC 3684 Chapter 4 & 5

1) Stocks, bonds and mutual fund shares are bought and sold in the capital market.
o True
o False

2) When a firm sells new securities, without SC registration, to an institutional investor this
is called as rights offering. Private placement = new securities sold directly to investors
o True
o False

3) Underwriters are responsible for promoting and facilitating the sale of securities.
o True
o False

4) The preliminary version of a prospectus is called a green turtle. Red herring

o True
o False

5) Bursa Malaysia Stock Exchange is where financial derivatives are being traded.
o True
o False

6) FBM KLCI is the benchmark of Malaysian stock market.

o True
o False

7) The majority of bonds trade in the OTC market.

o True
o False

8) Insider trading is the use of public information about a security to gain a profit.
o True
o False

9) Margin trading requires the borrowing of securities.

o True Margin – borrowing of fund.
o False Short selling- borrowing of securities.

10) Insider trading is considered as illegal in Malaysia.

o True
o False

11) Short selling requires the borrowing of securities.

o True
o False
12) When a person sells a common stock short, she or he is betting on a price increase within
a short period of time.
o True Expect price decrease and buy back later.
o False

13) Market orders referring to authorization of immediate transaction at best available price.
o True
o False

14) Discount brokers provide extensive stocks information and investment advice to their
client.
o True Only offer to make orders for clients but at lower cost, no advice is given.
o False The one who provide stock information is full service broker.

15) Stock brokers who is working at a stock broking company and their security deposits is
being paid by the stock broking company is called as remisiers. (dealers)
o True
Remisiers put the deposit on their own.
o False Dealers are the one who represents.

Multiple choice questions. Choose the best answer.

1) Short-term securities are bought and sold in the

A) capital market.
B) primary market.
C) money market.
D) stock market.
Primary market is the 1st issue to the market.
2) Which one of the following statements concerning the primary market is correct?
A) A transaction in the primary market is between two private stockholders.
B) The first public sale of a company's stock in the primary market is called a seasoned
new issue.
C) A private placement occurs in the primary market.
D) A rights offering is a direct sale of stock to an institution that participates in the
primary market.

3) The governmental agency that oversees the capital markets is the

A) Central Bank of Malaysia
B) Khazanah Berhad
C) Securities Commission.
D) Investment bank

4) A rights offering is the

A) initial offering of securities to the public.
B) offering of new securities to current shareholders on a pro-rata basis.
C) sale of newly issued shares of stock to the general public.
D) sale of securities directly to a select group of investors.
5) Investment bankers who join together to share the financial risk associated with buying
an entire issue of new securities and reselling them to the public is called a(n)
A) selling group.
B) tombstone group.
C) underwriting syndicate.
D) primary market group.

6) Which of the following are functions of the secondary market?

I. Provide liquidity for current stockholders.
II. Equate the demand and supply of securities.
III. Provide a market for the sale of new stock by companies that are already public.
IV. Provide continuous pricing of securities.
A) I and II only
B) II and IV only
C) I and III only
D) I, II and IV only

7) Which of the following are associated with bull markets?

I. investor pessimism
II. government stimulus
III. economic recovery
IV. low inflation
A) I and II only
B) II and III only
C) I, II and III only
D) II, III and IV only

8) Which of the following are characteristics of short selling?

I. borrowing shares of stock from a brokerage firm or other investors
II. selling shares of stock, you do not own
III. betting the stock price will increase
IV. limiting losses per share to the price at which the stock was sold
A) I and II only
B) III and IV only
C) I, II and IV only
D) I, II, III only

9) Which of the following the functions of an investment bank?

I. Advisory function, wherein they offer advice to clients concerning the issuance of
new securities;
II. Underwriting function, consisting of the purchase of securities from an issuer and
their subsequent sale to investors;
III. Marketing function, involving the sale of the securities to the investing public.
IV. Broker function, matching between issuer and buyer of securities.
A) I and II only
B) III and IV only
C) I, II and IV only
D) I, II, III only
10) With regard to bond ratings, which of the following statements is INCORRECT?
A) AAA, AA and A Bond represent investment grade securities.
B) Investment graded bonds are expected to have low default risks.
C) Banks or financiers would charge the lowest interest rates on companies with DDD
Bonds.
D)Ratings are current opinions on the relative quality of bonds.

BB and DDD are high default risk.

The higher the interest rate, the higher the risk.