Question

13._____When does a “red herring” become a prospectus?

a. when it goes to the printer.

b. when the issue is placed, i.e., the deal is done.

c. when it is pickled and fileted.

d. when it is caught.

e. when the issue fails.

14._____According to your instructor, the underwriting process is fraught with risk, exposing the lead underwriter, the underwriting syndicate, and the selling group to dire financial peril.

a. yes

b. no

15._____Curency risk is a characteristic of

a. domestic stocks.

b. international stocks.

c. EU stocks.

d. all of the above.

e. more than one, but not all, of the above.

16._____Over the last ten or so years, markets have been characterized by

a. declining bid/ask spreads.

b. increasing bid/ask spreads.

c. elimination of bid/ask spreads.

d. increasing commissions.

e. elimination of risk premia.

17._____When you are long a stock and have not borrowed to become long, the limit to your downside is

a. infinite.

b. defined.

c. the amount you paid for the stock.

d. all of the above.

e. more than one, but not all, of the above.

18._____When you are short a stock and have not borrowed to become short, the limit to your downside is

a. infinite.

b. defined.

c. the amount you paid for the stock.

d. all of the above.

e. more than one, but not all, of the above.

Answer 1

13]

(b) - When the issue is placed, the red herring prospectus becomes the final prospectus

14]

No

The underwriting process reduces risk for selling group. Although it exposes the underwriting syndicate to some risk, it is manageable risk and not dire risk of financial peril, else the underwriter would not underwrite the issue

15]

(b) - international stocks. This is because the change in exchange rates results in higher uncertainty.

16]

(a) - declining bid ask spreads. This is due to higher volumes and more market making activity

17]

(c) - the amount you paid for the stock. This is because the stock price can fall to zero, but no more.

18]

(a) - infinite.

This is because there is no potential upside limit