Question

1. Arguments supporting entry of commercial banks into the securities business include     

A)  Increased competition

B) Reduction in the number of instances involving a conflict of interest

C) Increased brokerage commissions

D)  All of the above

2. Which of the following is true about investment companies?

A. The NAV of a closed-end fund does not change since the shares of the funds are traded on an exchange or over-the-counter

B. Open-end funds are more popular than closed-end funds primarily due to their higher level of liquiditY

C. Since hedge funds often take opposing positions (buy and sell at the same time) in similar securities to hedge their risk, hedge funds are thus very low risk investments

D. None of the above

3. Insurance companies battle the moral hazard problems through

1. Risk-based premiums
2. Restrictive provisions
3. Screening customers
4. All of the above

4. The process of underwriting a stock or bond issue requires that the securities firms

1. Assure the public that the issue is legitimate and not a fraudulent confidence game
2. Purchase the entire issue at a pre-determined price if the quantity demanded by consumers is insufficient at the pre-determined price
3. Purchase the entire issue at a pre-determined price and then resell it in the secondary market
4. Help management assess the risk level of the securities

Answer 1

Answer-

Q 1)

The correct Option is A. Increased competition.

The other options B and C are incorrect as the increases the possibility of conflict of interest and decreases the brokerages commission.

Q 2 )

The second statement are correct. Open-end funds are more popular than closed-end funds primarily due to their higher level of liquidity.

The first statement is incorrect. Closed-end funds do not trade at their NAVs.

The third statement is incorrect.

Q 3)

The correct Options are B. Restrictive provisions.

Restrictive provisions policies is an insurance management tool for reducing moral hazard.

The Options A and C are incorrect.

Q 4)

The correct Option is C.  Purchase the entire issue at a pre-determined price and then resell it in the secondary market.

The other Options A,B and D are incorrect.