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The primary role of organized security exchanges is to raise

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Question 1
The primary role of organized security exchanges is to raise capital (money) for firms.
Answer
TRUE
FALSE
Question 2

In an "underwriting" the investment banker guarantees the firm selling the securities a specified amount.
Answer
TRUE
FALSE

T
Question 3

In a "best effort" sale of securities, the risk of the sale rests with the investment banker.
Answer
TRUE
FALSE

Question 4

The "syndicate's" role in an underwriting is to sell the new issue of securities.
Answer

TRUE
FALSE
Question 5

The preliminary prospectus ("red herring") does not include the offer price of a new stock issue.
Answer

TRUE
FALSE
Question 6

Which of the following is not a short-term, liquid asset?
Answer
a. negotiable certificate of deposit
b. U.S. Treasury bills
c. corporate stock
d. commercial paper
Question 7

Money market mutual funds invest in
1. commercial paper
2. repurchase agreements
3. corporate bonds

Answer
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. All of these choices
Question 8

The deregulation of the banking system has
Answer
a. increased the growth of money market mutual funds
b. resulted in lower interest rates
c. blurred distinctions among financial intermediaries
d. reduced the power of the SEC
Question 9

Commercial paper is
Answer
a. a short-term unsecured debt of a corporation
b. a short-term secured debt of a corporation
c. a long-term unsecured debt of a corporation
d. a long-term secured debt of a corporation

Question 10

Which of the following does not have default risk?
Answer

a. money market mutual funds
b. commercial paper
c. negotiable certificates of deposit
d. treasury bills

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Solution Summary

The primary role of organized security exchanges is to raise capital (money) for firms.
Answer
TRUE
FALSE
Question 2

In an "underwriting" the investment banker guarantees the firm selling the securities a specified amount.
Answer
TRUE
FALSE

T
Question 3

In a "best effort" sale of securities, the risk of the sale rests with the investment banker.
Answer
TRUE
FALSE

Question 4

The "syndicate's" role in an underwriting is to sell the new issue of securities.
Answer

TRUE
FALSE
Question 5

The preliminary prospectus ("red herring") does not include the offer price of a new stock issue.
Answer

TRUE
FALSE
Question 6

Which of the following is not a short-term, liquid asset?
Answer
a. negotiable certificate of deposit
b. U.S. Treasury bills
c. corporate stock
d. commercial paper
Question 7

Money market mutual funds invest in
1. commercial paper
2. repurchase agreements
3. corporate bonds

Answer
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. All of these choices
Question 8

The deregulation of the banking system has
Answer
a. increased the growth of money market mutual funds
b. resulted in lower interest rates
c. blurred distinctions among financial intermediaries
d. reduced the power of the SEC
Question 9

Commercial paper is
Answer
a. a short-term unsecured debt of a corporation
b. a short-term secured debt of a corporation
c. a long-term unsecured debt of a corporation
d. a long-term secured debt of a corporation

Question 10

Which of the following does not have default risk?
Answer

a. money market mutual funds
b. commercial paper
c. negotiable certificates of deposit
d. treasury bills

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Similar Posting

Goals of financial management, the nature, function, and purpose of stock exchanges, importance of share price information.

Shareholders wealth maximization

The goal of the firm, and therefore of all managers and employees, is to maximize the wealth of the owners for whom it is being operated. The wealth of corporate owners is measured by the share price of the stock, which in turn is based on the timing of returns (cash flows), their magnitude and their risk. When considering each financial decision, alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to increase share price. Because share price represent the owner's wealth in the firm, share price maximization is consistent with owner-wealth maximization.

Although shareholder wealth maximization is the primary goal, in recent years many firms have broadened their focus to include the interests of stakeholders as well as shareholders. Stakeholders are groups such as employees, customers, suppliers, creditors, owners and others who have a direct economic link to the firm. Employees are paid for their labor, customers purchase the firm's products or services, suppliers are paid for the materials and services they provide, creditors provide debt financing that is to be repaid subject to specified terms and owners provide equity financing for which they expect to be compensated. A firm with a stakeholder focus consciously avoids actions that would prove detrimental to stakeholders. The goal is not to maximize stakeholder well being but to preserve it.

The stakeholder view does not alter the shareholder wealth maximization goal. Such a view is often considered part of the firm's social responsibility and is expected to provide maximum long-run benefit to shareholders by maintaining positive stakeholder relationships. Such relationships should minimize stakeholder turnover, conflicts and litigation. Clearly, the firm can better achieve its goal of shareholder wealth maximization with cooperation of (rather than conflict with) its stakeholders.

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