Investment Banking Test
Preparation
Course Introduction
Investment Banking introduces students to the fundamental concepts, operations, and roles of investment banks in global financial markets. The course covers key topics such as mergers and acquisitions, capital raising, underwriting, initial public offerings (IPOs), valuation techniques, and risk management. Students also examine regulatory frameworks, ethical considerations, and current trends influencing the industry. Through case studies and practical exercises, participants develop analytical skills necessary for evaluating complex financial transactions and gain insights into the career paths available within investment banking.
Recommended Textbook
Financial Institutions and Markets 7th Edition by Ben Hunt
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14 Chapters
1469 Verified Questions
1469 Flashcards
Source URL: https://quizplus.com/study-set/3450
Page 2
Chapter 1: Overview of the Financial System
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95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/68522
Sample Questions
Q1) According to Merton (1995), financial systems perform three functions.These are the settlement function, the flow of funds function and the risk-transfer function.
A)True
B)False
Answer: False
Q2) Which contracts can be used to manage financial risks?
Answer: Derivatives are used for risk management.They are financial contracts whose value is dependent upon another security, market variable or index.This can be to change a risk exposure by hedging (which sets a forward rate or price)or to undertake high risk and return investing known as speculation.
Q3) In reference to the flow of funds from surplus to deficit units, deficit units generally prefer:
A)high interest rates
B)small amounts
C)contracts with long periods
D)All of these.
E)None of these.
Answer: C
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3
Chapter 2: The Payments System
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102 Verified Questions
102 Flashcards
Source URL: https://quizplus.com/quiz/68521
Sample Questions
Q1) The very large number of retail payment orders:
A)exposes receiving institutions to significant settlement risk
B)includes cash, cheques and EFTPOS
C)are netted, which greatly reduces the settlement amounts
D)are settled on a same-day basis.
E)All of these.
Answer: C
Q2) Why do retail payment orders require authorisation and verification? How is this achieved?
Answer: Authorisation is required to instruct the ADI to transfer funds from the drawer's account in order to settle a transaction.It can be achieved through either a signature or a personal identification number (PIN).Verification is required to ensure the person authorising the payment order is the account holder, and so reduces fraud.A PIN verifies (as well as authorises)the payment order, whereas a signature needs to be examined.This can be by the merchant at the point of sale by checking the signature against the card, but cheques must be transported back to the drawer's bank for inspection.
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Chapter 3: Introduction to the Flow of Funds
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98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/68520
Sample Questions
Q1) What is a round-trip transaction?
Answer: This term refers to a transaction at a dealer's bid (i.e.the price at which the securities are acquired by the dealer)and a transaction at the dealer's offer (i.e.the securities are sold at the dealer's offer).It indicates the revenue from a dealer's spread.
Q2) The phenomenon of price bubbles is relatively recent.
A)True
B)False Answer: False
Q3) 'Underwriting' refers to the process of arranging the issue of financial securities.
A)True
B)False Answer: True
Q4) The expression 'order-driven market' refers to the bids and offers of dealers. A)True
B)False Answer: False
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Chapter 4: Funds Management
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113 Verified Questions
113 Flashcards
Source URL: https://quizplus.com/quiz/68519
Sample Questions
Q1) Compulsory superannuation in Australia is in the form of defined contribution schemes.
A)True
B)False
Q2) Fund managers:
A)bear the investment risk posed by the variability of returns on investments
B)earn net interest revenue in return for their services
C)collect retail investor's funds and arrange the investment of pooled funds
D)invest the pooled funds in shares.
E)All of these.
Q3) Distinguish between 'balanced' and 'growth' superannuation portfolios.
Q4) Compulsory superannuation will provide an adequate retirement income and so overcome the need for the age pension.
A)True
B)False
Q5) Active funds management is consistent with the efficient market hypothesis.
A)True
B)False
Q6) Why are insurance companies classified as fund managers?
Q7) What is the evidence regarding the success of active managers?
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Chapter 5: Authorised Deposit-Taking Institutions
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116 Verified Questions
116 Flashcards
Source URL: https://quizplus.com/quiz/68518
Sample Questions
Q1) A bank issues 90-day bank-accepted bills on behalf of a borrower for a fee of 50 basis points.Given a market yield of 4.5% and a face value of $1 million, what fee will the bank earn?
A)$5000.00
B)$1204.50
C)$4945.13
D)$4939.11
E)None of these.
Q2) Explain how wholesale deposits are normally arranged.How is the depositor's desire for liquidity met?
Q3) What will $1000 accumulate to if it is invested for two and a half years at a rate of 10% p.a.compounded monthly?
Q4) Bill receivable agreements are assets for acceptors. A)True
B)False
Q5) Loans to business are generally made on a standardised basis in terms of the loan application process and the interest rate charged. A)True B)False
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Chapter 6: The Stability of Deposit-Taking Institutions
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77 Verified Questions
77 Flashcards
Source URL: https://quizplus.com/quiz/68517
Sample Questions
Q1) Maturity mismatch implies that Australia's banks have a serious liquidity management problem.
A)True
B)False
Q2) What is prudential supervision? Describe how APRA supervises Australian ADIs and the role of the capital adequacy requirement.
Q3) Describe two general forms of interest rate risk faced by banks.
Q4) The quality of bank loans is of fundamental importance to the health of the banking system.
A)True
B)False
Q5) Explain how ADIs have changed their management of funding risk post GFC.
Q6) The amount of non-performing loans is most relevant to which of the following key indicators monitored by the RBA?
A)Profitability
B)Asset quality
C)Capital
D)Liquidity
E)Share-prices
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Chapter 7: The Money Market
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95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/68516
Sample Questions
Q1) Explain the role of dealer panels in the commercial paper market.
Q2) Which money-market security will trade at the lowest yield?
A)Treasury notes
B)Commercial paper
C)Certificates of deposit
D)Bank bills
E)These securities will trade at the same yield.
Q3) Money-market dealers want to be 'hit'.
A)True
B)False
Q4) The RBA has to predict the future state of the economy when deciding whether to change the cash rate.
A)True
B)False
Q5) Dealers in the money market:
A)trade in both wholesale and retail amounts
B)must trade in accordance with the rules of the exchange
C)trade in 'same day' funds
D)earn a commission when a trade is completed
E)will set bid quotes lower than offer quotes.
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Chapter 8: The Bond Market
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124 Verified Questions
124 Flashcards
Source URL: https://quizplus.com/quiz/68515
Sample Questions
Q1) An investment strategy to buy bonds which are then held until their maturity poses price risk.
A)True
B)False
Q2) The ex-interest period is one week before the coupon payment date.
A)True
B)False
Q3) Bonds are a high-risk, high-return asset class compared with shares.
A)True
B)False
Q4) What is a 'tranche'?
Q5) Clearly describe the trading arrangements, pricing conventions and settlement provisions in the Australian bond market.
Q6) A bond with exactly five years until maturity paying 6% p.a.coupons semi-annually and with a face value of $100 was purchased at a yield of 6.5% p.a.The bond was sold exactly two years later for a yield of 5% p.a.All coupons were reinvested at 6% p.a.Calculate the realised yield-to-maturity on this bond.
Q7) Describe how Treasury bonds are issued.
Q8) Specify the sources of the returns for a bond investor.
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Chapter 9: Shares
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96 Verified Questions
96 Flashcards
Source URL: https://quizplus.com/quiz/68514
Sample Questions
Q1) Institutional investors have become important suppliers of capital to the venture capital market.
A)True
B)False
Q2) A large IPO can be considered one that markets a substantial quantity of the shares to institutional investors.
A)True
B)False
Q3) The marketing process of a large IPO would NOT normally include:
A)pre-marketing to prepare investors for the issue
B)the commissioning of independent and unbiased analyst's reports
C)a road show
D)a bookbuild
E)the pricing and allocation of shares to investors.
Q4) A company conducted a one-for-five renounceable rights issue at a subscription price of $35 when its cum-rights price was $43.50.a)Calculate the theoretical value of the rights and the ex-rights price.b)Calculate the amount raised by the company assuming it had 50 million issued shares prior to the rights issue, the process was a success and it paid fees of 6% to the investment bank that arranged the rights issue.
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Chapter 10: The Share Market
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84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/68513
Sample Questions
Q1) Large-cap shares have much greater liquidity than the shares of smaller companies.This is reflected in their:
A)greater daily turnover
B)greater daily turnover and wider bid-ask spreads
C)greater daily turnover, wider bid-ask spreads and lower price resilience
D)greater daily turnover, narrower bid-ask spreads and lower price resilience
E)greater daily turnover, narrower bid-ask spread and greater price resilience.
Q2) A company requires a record of its shareholders for:
A)facilitating communication between management and shareholders
B)authorising voting at general shareholder meetings
C)paying dividends
D)monitoring significant changes in share ownership.
E)All of these.
Q3) The firms in the ASX 20 are not included in the ASX 200.
A)True
B)False
Q4) The ASX is listed on the ASX.
A)True
B)False
Q5) Identify and briefly explain the competitive pressures faced by the ASX.
Page 12
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Chapter 11: Foreign Exchange and Global Capital Markets
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126 Verified Questions
126 Flashcards
Source URL: https://quizplus.com/quiz/68512
Sample Questions
Q1) A spot FX contract is settled immediately.
A)True
B)False
Q2) Where a borrower of foreign currency funds hedges its FX risk with an FX swap, the borrower's effective interest rate will be the domestic interest rate.
A)True
B)False
Q3) Foreign companies can gain access to US share markets by arranging the issue of American depository receipts (ADRs).
A)True
B)False
Q4) Distinguish between 'spot' and 'forward' foreign exchange contracts.
Q5) If 1 AUD is buying 0.42 GBP, then 1 GBP buys:
A)2.38 AUD
B)0.42 AUD
C)1.42 AUD
D)0.58 AUD
E)2.40 AUD
Q6) Explain why most developed countries have 'floated' their currencies.
Page 13
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Chapter 13: Financial Futures
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115 Verified Questions
115 Flashcards
Source URL: https://quizplus.com/quiz/68511
Sample Questions
Q1) Demonstrate that the effective cost of funds for a $20 million 90-day bank bill issue in June is the forward rate established in April (when 20 June BAB futures are sold at 96.45), rather than the BBSW of 4.05% when the bills are issued in June.
Q2) Say you placed an at-market order to buy a quantity of futures contracts.The counterparty in your resulting futures contract is:
A)another trader
B)a bank
C)your broker
D)the clearinghouse
E)the ASX.
Q3) Through the processes of novation and margin payments, the clearinghouse:
A)becomes counterparty to each futures transaction
B)seeks to protect traders from default risk
C)will close out the position of defaulting traders
D)guarantees the performance of futures contracts.
E)All of these are correct.
Q4) The Australian futures market is for use by wholesale traders only.
A)True
B)False
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Chapter 14: Swaps
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88 Verified Questions
88 Flashcards
Source URL: https://quizplus.com/quiz/68510
Sample Questions
Q1) Cross-currency swaps are widely used by banks to manage the exchange rate risk on their foreign debt.
A)True
B)False
Q2) Credit default swaps are contracts where the protection buyer agrees to pay a fee to the protection seller in return for a specified series of payments.
A)True
B)False
Q3) Cross-currency swaps do NOT involve:
A)The exchange of principal at the start of the loan.
B)The exchange of fixed local currency interest payments for floating foreign currency interest payments.
C)A fixed exchange rate for the swap's term.
D)The exchange of floating local currency interest payments for floating foreign currency interest payments.
E)The exchange of principal at the end of the loan.
Q4) Compare the features of a plain vanilla swap with those of a cross-currency swap.
Q5) How can a bank reduce its credit risk exposure on a large loan it has made?
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Chapter 15: Exchange-Traded Options
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140 Verified Questions
140 Flashcards
Source URL: https://quizplus.com/quiz/68509
Sample Questions
Q1) Traders expecting an increase in price volatility of the underlying share will consider a short straddle, while long straddles may be used by those expecting a decrease in volatility.
A)True
B)False
Q2) It makes sense for traders expecting a stagnant market with low levels of volatility to take a short straddle position with exercise prices close to the current asset price.
A)True
B)False
Q3) An option can be exercised only by its holder.
A)True
B)False
Q4) How is a bull spread constructed and when would its use be considered?
Q5) The seller of a call option:
A)has unlimited profit potential
B)has a potential for profit that is limited to the option premium
C)rarely makes a profit
D)has positive intrinsic value when the S < X.
E)More than one of these is correct.
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