ACC212 Financial Markets Reviewer (1st Exam)

Chapter 1

1. Role of Financial Markets and Institutions

Financial Markets facilitate the flow of funds from those with surplus funds
(surplus units) to those in need of funds (deficit units). Examples include
helping businesses finance operations, students obtaining loans, and
households getting mortgages.

They also help investors (surplus units) earn returns on their investments by
purchasing securities like stocks and bonds.

2. Key Roles of Financial Markets

Corporate Finance Needs: Companies (deficit units) raise funds through

the financial markets by issuing securities.

Investment Needs: Financial markets provide surplus units with investment

options (stocks, bonds, etc.), enabling them to allocate their excess funds.

3. Types of Financial Markets

Primary Markets: Facilitate the issuance of new securities.

Secondary Markets: Facilitate the trading of existing securities, allowing

ownership to transfer from one party to another.

4. Types of Securities Traded

Money Market Securities: Short-term debt securities (maturity less than

one year), e.g., Treasury bills, commercial paper.

Capital Market Securities: Long-term securities such as bonds,

mortgages, and stocks.

 Bonds: Debt securities with periodic interest payments and principal

repayment at maturity.
 Stocks: Equity securities representing ownership in a corporation,
providing dividends and potential capital gains.
  Mortgages: Long-term loans to finance real estate purchases, where
the property serves as collateral.

5. Derivative Securities

Speculation and Risk Management: Derivatives allow investors to

speculate on asset price movements or hedge risk from existing
investments.

6. Valuation of Securities

Present Value: Securities are valued based on the present value of

expected future cash flows. The discount rate reflects uncertainty.

7. Role of Financial Institutions

Depository Institutions: Include banks, savings institutions, and credit

unions, which accept deposits and provide loans.

 Commercial Banks: Accept deposits and offer loans to households and

businesses.
 Savings Institutions: Primarily focus on residential mortgage lending.
 Credit Unions: Nonprofit institutions that provide services to
members with a common bond.

Non-depository Institutions: Include finance companies, mutual funds,

securities firms, insurance companies, and pension funds. They generate
funds from sources other than deposits and play a crucial role in financial
intermediation.

 Mutual Funds: Pool funds from investors to purchase securities.

 Insurance Companies: Invest premiums in securities and provide
financial protection against risks like death or property damage.

8. Government Role in Financial Markets

Regulation and Intervention: To ensure fair and orderly financial markets,

the government regulates financial institutions, intervenes during crises, and
imposes transparency and disclosure requirements.
9. Financial Crisis and Systemic Risk

The 2007-2009 Credit Crisis highlighted systemic risk, where problems in

one part of the financial system affect others. Many financial institutions
suffered losses from mortgage-backed securities, which led to broader
market disruptions.

10. Conclusion

Financial markets and institutions are essential for the transfer of funds,
investment opportunities, and overall economic growth. Despite challenges,
they continue to play a vital role in both corporate finance and individual
investment activities.

Practice MCQ
1. What is the main role of financial markets?
a) To manage corporate accounts
b) To facilitate the flow of funds between surplus and deficit units
c) To reduce inflation
d) To generate government income
2. Surplus units are best defined as:
a) Individuals or entities who spend more than they earn
b) Entities that require funds
c) Entities who save and invest excess funds
d) Government agencies

3. Deficit units typically:

a) Supply funds to the financial markets
b) Spend more money than they receive
c) Provide loans to surplus units
d) Are limited to households only

4. Which of the following is NOT a type of security traded in financial

markets?
a) Bonds
b) Mortgages
c) Derivative securities
d) Barter contracts

5. Equity securities represent:

a) Ownership in a corporation
b) Debt incurred by a company
c) A loan to the government
d) A type of bond

6. Which type of market facilitates the trading of existing securities?

a) Primary market
b) Secondary market
c) Capital market
d) Money market
7. Which of the following is a characteristic of money market securities?
a) Long-term maturity
b) High liquidity
c) High risk of default
d) Ownership in companies

8. Money market securities generally have maturities of:

a) 1 year or less
b) 5 years
c) 10 years
d) 20 years

9. Which of the following is an example of a capital market security?

a) Commercial paper
b) Treasury bill
c) Stock
d) Certificate of deposit

10. What is the primary difference between bonds and stocks?

a) Bonds are riskier than stocks
b) Stocks represent ownership, while bonds represent debt
c) Bonds have no maturity, but stocks do
d) Stocks are always more liquid than bonds

11. Bonds provide returns to investors in the form of:

a) Dividends
b) Interest income
c) Capital gains
 d) Ownership rights

12. Mortgages are primarily used to finance:

a) Corporate bonds
b) Equity investments
c) Real estate purchases
d) Commercial paper

13. Which of the following is classified as a depository institution?

a) Mutual funds
b) Commercial banks
c) Insurance companies
d) Pension funds

14. Credit unions are different from commercial banks because they are:
a) For-profit organizations
b) Limited to large businesses
c) Nonprofit and serve specific members
d) Government-owned

15. Primary markets are where:

a) Existing securities are traded
b) new securities are issued
c) Derivative contracts are formed
d) Currency exchanges take place

16. Which type of financial institution focuses on insurance policies?

a) Commercial banks
b) Mutual funds
 c) Pension funds
d) Insurance companies

17. Stocks are classified as:

a) Capital market securities
b) Money market securities
c) Derivatives
d) Debt instruments

18. Mutual funds pool funds from investors to purchase:

a) A portfolio of stocks and bonds
b) Real estate
c) Government-issued currency
d) Only money market instruments

19. The main purpose of pension funds is to:

a) Provide short-term loans
b) Offer retirement savings for employees
c) Trade stocks in secondary markets
d) Issue bonds to corporations

20. What is a major characteristic of derivative securities?

a) They have no underlying assets
b) Their value is derived from another asset
c) They are only traded in primary markets
d) They offer guaranteed returns

21. Which financial institution is nonprofit and limited to specific members?

a) Commercial bank
 b) Credit union
c) Mutual fund
d) Finance company

22. Which of the following long-term debt securities are issued by

corporations?
a) Commercial paper
b) Bonds
c) Stocks
d) Derivative contracts

23. Which of the following facilitates short-term borrowing by corporations?

a) Money market
b) Capital market
c) Foreign exchange market
d) Equity market

24. Derivative securities can be used for:

a) Speculation only
b) Risk management only
c) Both speculation and risk management
d) Long-term financing

25. Securities firms often act as:

a) Brokers and dealers
b) Insurance providers
c) Loan originators
d) Pension fund managers

26. The purpose of the secondary market is to:

 a) Issue new securities
b) Facilitate trading of previously issued securities
c) Set interest rates
d) Provide insurance policies

27. In a financial market, liquidity refers to:

a) The ease with which securities can be converted to cash
b) The profit potential of security
c) The level of interest paid on bonds
d) The maturity period of debt

28. Money market securities tend to have:

a) High risk and high return
b) Low risk and low return
c) High liquidity and low return
d) High default rates
29. Government bonds are typically seen as:
a) High-risk investments
b) Free from default risk
c) Derivative securities
d) Short-term investments

30. Which institution primarily provides long-term loans for real estate
purchases?
a) Savings institutions
b) Securities firms
c) Finance companies
d) Mutual funds

31. The primary market provides funds to:

 a) Investors
b) Issuers of new securities
c) Secondary traders
d) Government regulators

32. What caused major losses for financial institutions during the 2008 credit
crisis?
a) High interest rates
b) Mortgage-backed securities defaults
c) foreign exchange fluctuations
d) Falling bond prices

33. Systemic risk refers to:

a) The failure of an individual bank
b) The spread of financial problems across institutions
c) The risk associated with foreign exchange
d) Risks related to short-term securities

34. Equity securities provide:

a) Guaranteed interest income
b) Ownership rights in a company
c) Government protection from losses
d) Long-term loan contracts

35. Mutual funds differ from depository institutions because they:

a) Accept deposits from customers
b) Pool investor funds to buy securities
c) Offer credit to customers
d) Provide insurance services
36. Which market deals with the exchange of currencies?
a) Capital market
b) Money market
c) foreign exchange market
d) Derivatives market

37. Which of the following is a regulatory response to the 2008 financial

crisis?
a) Financial Reform Act of 2010
b) Creation of more mutual funds
c) Expansion of derivatives trading
d) Federal Reserve rate hike

38. Government intervention in financial markets aims to:

a) Increase systemic risk
b) Ensure liquidity and fairness
c) Eliminate financial institutions
d) Reduce borrowing for small businesses

39. Securities that derive their value from other assets are called:
a) Bonds
b) Stocks
c) Derivatives
d) Commercial paper

40. Finance companies obtain funds primarily through:

a) Deposits
b) Issuing securities
c) Insurance premiums
d) Mutual fund investments
41. Which type of institution manages retirement funds for employees?
a) Commercial banks
b) Pension funds
c) Securities firms
d) Credit unions

42. Speculation in financial markets involves:

a) Avoiding all risks
b) Taking on risk for potential gains
c) Only buying government securities
d) Long-term debt financing

43. Mutual funds offer investors the ability to:

a) Buy real estate
b) Invest in a diversified portfolio of securities
c) Lend directly to other investors
d) Avoid market fluctuations

44. During the financial crisis, the Emergency Economic Stabilization Act
aimed to:
a) Increase market speculation
b) Inject liquidity into the financial system
c) Lower interest rates
d) Regulate foreign markets

45. Which institution is most involved in facilitating the buying and selling of
stocks?
a) Commercial banks
b) Securities firms
 c) Credit unions
d) Savings institutions

46. Mortgage-backed securities are backed by:

a) The government's guarantee
b) A bundle of individual mortgages
c) Corporate bonds
d) Foreign exchange contracts

47. The term 'liquidity' in financial markets refers to the ability to:
a) Generate profits
b) Sell securities quickly without loss
c) Take more risk
d) Invest in long-term securities

48. Which of the following is NOT a primary function of financial institutions?

a) Accepting deposits
b) Providing insurance
c) Issuing dividends
d) Facilitating loans

49. A capital gain on stocks occurs when:

a) A stock is sold at a higher price than purchased
b) A company issues bonds
c) Dividends are distributed
d) A stock is held long-term

50. Securities firms that help companies issue new stock are involved in:
a) Secondary market trading
 b) Investment banking
c) Insurance underwriting
d) Credit assessment

MCQ 2
1. Which of the following best explains the relationship between surplus and
deficit units in financial markets?
a) Surplus units issue securities, while deficit units invest in them
b) Deficit units purchase securities issued by surplus units to raise funds
c) Surplus units lend funds by purchasing securities issued by deficit units
d) Surplus units and deficit units have no interaction in modern financial
markets

2. A corporation issues a bond with a face value of $10,000 and an annual

coupon rate of 5%. After three years, the market interest rate rises to 7%.
Which of the following is true about the bond's price in the secondary
market?
a) The bond's price will rise above its face value
b) The bond's price will fall below its face value
c) The bond's price will remain at face value
d) The bond will become illiquid and unsellable

3. How does the liquidity of a security in the secondary market affect its
yield?
a) Higher liquidity leads to a higher yield because of increased demand
b) Higher liquidity leads to a lower yield because investors require less
compensation for risk
c) Lower liquidity leads to a lower yield because of limited market
participation
d) Liquidity has no effect on the yield of a security in the secondary market

4. Which of the following factors would cause a bond to be considered a

“junk bond”?
 a) Short maturity period
b) High credit rating but low interest rate
c) High risk of default and low credit rating
d) Issued by a government entity

5. Which of the following is true regarding the role of financial institutions

during the 2008 financial crisis?
a) Financial institutions increased lending to mitigate the housing bubble
b) Many financial institutions were insulated from mortgage-backed
securities exposure
c) Systemic risk spread because of the interconnectedness of financial
institutions holding mortgage-related assets
d) financial institutions were protected by new regulatory reforms
introduced prior to the crisis

6. How do derivative securities differ from capital market securities?

a) Derivative securities have longer maturity periods than capital market
securities
b) Derivative securities derive their value from an underlying asset,
whereas capital market securities do not
c) Capital market securities are more volatile than derivative securities
d) Derivative securities are only traded in primary markets

7. Which of the following would most likely increase the credit risk premium
on corporate bonds?
a) A company’s earnings surpassing expectations
b) A rise in the company’s stock price
c) A downgrade of the company’s credit rating by rating agencies
d) A reduction in market interest rates

8. In what way can the valuation of equity securities be more complex than
the valuation of debt securities?
 a) Equity securities involve fixed payments, whereas debt securities do not
b) The future cash flows from equity securities are uncertain, and equity
securities have no maturity date
c) Debt securities’ value is influenced by company growth, while equity
securities are only affected by interest rates
d) Equity securities’ prices are not influenced by the company’s financial
performance

9. Which of the following situations is most likely to occur during a period of

high systemic risk?
a) All securities increase in value due to market stability
b) The failure of one financial institution may lead to the collapse of others
c) The Federal Reserve reduces liquidity to minimize risk
d) Financial institutions are insulated from each other’s performance

10. Why would a corporation prefer to issue equity securities rather than
debt securities in certain situations?
a) Equity securities reduce a corporation’s ownership control
b) Debt securities require regular interest payments, which may strain
cash flow
c) Equity securities provide fixed returns to investors
d) Issuing equity securities improves creditworthiness

11. Which of the following is the primary function of investment banks within
financial markets?
a) Provide retail banking services
b) Facilitate mergers and acquisitions and underwrite new securities
c) Issue personal loans to households
d) Manage retirement funds for individuals

12. During the 2008 financial crisis, which financial instrument played a
significant role in the spread of systemic risk?
 a) Treasury bonds
b) Commercial paper
c) Mortgage-backed securities
d) Equity mutual funds

13. Which of the following types of markets is primarily concerned with long-
term capital investment?
a) Foreign exchange market
b) Money market
c) Capital market
d) Derivatives market

14. Which of the following changes would you expect in the secondary
market when there is a rise in market interest rates?
a) Bond prices increase, attracting more buyers
b) Bond prices decrease, causing existing bondholders to experience
capital losses
c) Stock prices increase to match the returns on bonds
d) The demand for bonds increases as the expected return rises

15. How does asymmetric information impact financial markets?

a) It leads to more efficient pricing of securities
b) It can cause market inefficiencies, where some investors have better
information than others
c) It reduces the risk of default in the bond market
d) It enhances liquidity in secondary markets

16. Which of the following would most likely occur if the Federal Reserve
increases the money supply?
a) Interest rates would rise, causing bond prices to fall
b) Interest rates would fall, increasing liquidity in financial markets
 c) The demand for equities would decline
d) Capital market securities would become illiquid

17. Which of the following accurately describes the primary function of the
secondary market?
a) It allows deficit units to issue new securities
b) It provides liquidity by allowing investors to buy and sell existing
securities
c) It enables the government to set interest rates for corporate bonds
d) It provides funds directly to companies seeking new financing

18. How does the risk associated with subprime mortgages compare to prime
mortgages?
a) Subprime mortgages have lower interest rates but higher risk
b) Subprime mortgages are more likely to default, thus having higher
interest rates
c) Subprime mortgages are less risky due to shorter maturity periods
d) Subprime mortgages are issued only by government institutions

19. Which of the following best defines the concept of market efficiency in
financial markets?
a) Securities prices fully reflect all available information
b) Securities prices are determined by government regulations
c) Securities prices remain stable over time
d) Securities are always priced below their intrinsic value

20. Why might a financial institution prefer to purchase mortgage-backed

securities instead of issuing direct loans to borrowers?
a) Mortgage-backed securities offer higher liquidity than direct loans
b) Mortgage-backed securities are less affected by changes in interest
rates
c) Direct loans provide higher returns than mortgage-backed securities
 d) Mortgage-backed securities reduce the exposure to individual borrower
risk by pooling mortgages

21. What is the effect of a credit downgrade on a corporation’s bond prices

and yields?
a) Bond prices increase, and yields decrease
b) Bond prices decrease, and yields increase
c) Bond prices and yields both increase
d) Bond prices and yields both decrease

22. Which of the following would most likely lead to an increase in systemic
risk across financial institutions?
a) High liquidity in capital markets
b) Decreased integration of international financial markets
c) Widespread defaults on mortgage-backed securities
d) Low levels of financial leverage across institutions

23. Which regulatory measure was introduced in response to the financial

reporting scandals in the early 2000s?
a) Emergency Economic Stabilization Act
b) Financial Reform Act of 2010
c) Sarbanes-Oxley Act
d) Securities Exchange Act of 1934

24. How do commercial banks differ from finance companies in their role
within financial markets?
a) Commercial banks issue long-term equity, while finance companies
issue short-term loans
b) Finance companies primarily obtain funds by accepting deposits, while
commercial banks rely on issuing securities
c) Commercial banks provide diversified financial services, while finance
companies focus on specific lending areas
 d) Finance companies underwrite corporate bonds, while commercial
banks do not

25. Which of the following outcomes would most likely occur in an illiquid
market?
a) Securities can be sold quickly at market value
b) Investors face difficulty finding buyers, leading to discounted prices
c) Securities in illiquid markets always offer higher yields
d) The number of transactions increases due to high demand
Chapter 10
1. Private Equity
Definition: Initial investment by a firm's founders, family, or friends, without
the option to sell shares to the public.
Venture Capital (VC) Funds: Private equity funds investing in private firms
not yet ready to go public. VC funds look for long-term growth and exit by
selling their stake after an IPO or acquisition.
Private Equity Funds: Different from VC funds as they often take control of
businesses, restructure, and exit through selling or IPO.

2. Public Equity
Going Public: Firms issue stock in the **primary market** to raise cash,
which changes ownership structure and increases equity.
Stocks: Represent partial ownership and are used by companies for long-
term funding. Stocks offer higher potential returns but also carry risks of loss.

3. Ownership and Voting Rights

Common Stock: Grants shareholders voting rights on major issues such as
board elections or corporate policies.
Preferred Stock: No voting rights, but preferred dividends. Preferred
stockholders are compensated before common stockholders if the company
generates profits.

4. Initial Public Offerings (IPOs)

Process: Companies engage in IPOs to raise funds and offer founders or VC
funds an exit. IPOs involve issuing shares for the first time to the public.
Underwriting: Investment banks (underwriters) help companies set the
offer price and ensure shares are sold.
Initial Returns: IPOs often show high initial returns due to demand, but
stocks might perform poorly in the long run.

5. Secondary Offerings
Secondary Offering: Issuing additional stock after the company has
already gone public to raise more funds.
Stock Repurchase: Companies may repurchase their shares if they believe
their stock is undervalued.

6. Stock Markets and Exchanges

Organized Exchanges: Like the New York Stock Exchange (NYSE), which
facilitates the trading of listed stocks.
Over the Counter (OTC): For stocks not listed on major exchanges, traded
via a telecommunications network (e.g., Nasdaq).

7. Stock Price Factors

Supply and Demand: Stock prices are influenced by investors' decisions,
news about the firm, and changes in market expectations.
Role of Analysts: Analysts provide stock recommendations that can impact
investor decisions and stock prices.
Market Indexes: Tools such as the Dow Jones and S&P 500 provide insight
into stock market performance.

8. Monitoring Public Companies

Agency Problems: Managers may not always act in shareholders' best
interests, leading to the need for monitoring by institutional investors, the
board of directors, and analysts.
Sarbanes-Oxley Act: Imposes stricter regulations on financial reporting to
ensure transparency and accuracy for investors.
Chapter 10: MCQs
1. Which of the following factors is most critical for a private firm to consider
before going public?
A. The availability of debt financing
B. The existence of a liquid secondary market
C. The size of the firm’s earnings
D. The firm’s relationship with venture capitalists

2. Venture capital (VC) funds typically exit their investment in a business by:
A. Selling the business to family-owned conglomerates
B. Reinvesting their equity in another startup
C. Selling their shares during the first 6 to 24 months after the firm goes
public
D. Cashing out by having the firm delisted from stock exchanges

3. Which of the following best explains why private equity firms often seek to
acquire overvalued and mismanaged companies?
- A. Overvalued firms are easier to acquire due to low costs
- B. Private equity firms specialize in improving operations for high returns
- C. They believe overvalued firms require minimal restructuring
- D. They aim to increase market volatility for short-term gains

4. **In an Initial Public Offering (IPO), the lead underwriter primarily assists
the issuing firm in:
- A. Assessing the firm's history of dividends and share repurchases
- B. Conducting roadshows and soliciting institutional investor interest
- C. Selecting venture capital funds to manage the stock sale
- D. Regulating shareholder voting rights post-IPO

5. **What is the most likely consequence of a firm ‘leaving money on the

table’ during its IPO?
 - A. The underwriter sets a lower offer price than what the market can bear
- B. The firm sets the offer price too high, resulting in undersubscription
- C. Institutional investors receive fewer shares than they demand
- D. The firm's shares are completely bought out by retail investors
Here are 20 additional difficult multiple-choice questions based on **Chapter
10: Stock Offerings and Investments**:

6. **Which of the following characteristics is least likely to be a requirement

for listing a stock on the New York Stock Exchange (NYSE)?
- A. A minimum number of shares outstanding
- B. A minimum stock price of $1 per share
- C. The company must have been profitable for at least five years
- D. The company must meet a minimum level of earnings

7. **The success of venture capital funds during periods of low stock prices
can primarily be attributed to:
- A. The availability of cheaper credit from financial institutions
- B. Lower acquisition costs for investing in companies
- C. Higher liquidity in secondary markets
- D. Increased government subsidies for start-ups

8. **Which statement about private equity funds is correct?

- A. They rely heavily on debt financing to take over companies
- B. They focus exclusively on early-stage businesses
- C. Their primary goal is to invest in undervalued public companies
- D. They avoid taking an active role in management

9. **Firms typically avoid going public until they can raise at least $50 million
to:
- A. Ensure the underwriters receive adequate compensation
- B. Facilitate the creation of a liquid secondary market
 - C. Enable the company to pay off all its existing debt
- D. Guarantee that the stock price will increase post-IPO

10. **What is the primary role of a specialist on the NYSE?

- A. Advising firms on stock offerings
- B. Creating liquidity by matching buy and sell orders
- C. Underwriting new issues of stocks and bonds
- D. Providing loans to small firms seeking to go public

11. **Which factor most likely leads to poor performance of IPOs in the long
term?
- A. Excessive lockup provisions imposed by underwriters
- B. Over-optimism by investors about the firm’s prospects
- C. Weak stock market conditions post-IPO
- D. Insufficient institutional investor interest

12. **A company might prefer issuing preferred stock rather than bonds
because:
- A. Preferred stock allows for tax-deductible dividend payments
- B. The company is not legally required to pay dividends on preferred
stock
- C. Preferred stockholders do not have any claim on profits
- D. Preferred stock is a cheaper form of capital compared to bonds

13. **Which of the following is true about the secondary stock market?
- A. It allows firms to issue new shares of stock
- B. It helps create liquidity for investors
- C. It is exclusively for institutional investors
- D. It is primarily regulated by venture capitalists
14. **In venture capital deals, why do venture capital funds prefer to provide
funding in stages?
- A. To spread the investment across multiple companies
- B. To monitor the firm's progress before committing more capital
- C. To delay providing equity until the firm is publicly traded
- D. To maximize returns by timing the capital injections with stock market
cycles

15. **Stock repurchase plans typically signal to investors that:

- A. The firm is in financial distress
- B. The stock is overvalued
- C. Management believes the stock is undervalued
- D. The firm is preparing for a hostile takeover

16. **In a Dutch auction IPO process, shares are:

- A. Sold to the highest bidder at their respective bid prices
- B. Sold at a uniform price to all investors whose bids were accepted
- C. Allocated to institutional investors only
- D. Sold directly to the public without the need for underwriters

17. **Which of the following is a common reason firms engage in secondary

stock offerings?
- A. To cash out early investors such as venture capitalists
- B. To replace preferred stock with common stock
- C. To raise additional capital to support growth
- D. To reduce the number of shareholders

18. **The lockup provision during an IPO is intended to:

- A. Allow underwriters to sell more shares to retail investors
- B. Prevent original owners from selling their shares for a specified period
 - C. Restrict institutional investors from flipping shares in the short term
- D. Guarantee that all IPO shares are sold at the same price

19. **Which statement about preferred stock is accurate?

- A. Preferred stockholders are guaranteed a fixed dividend regardless of
earnings
- B. Preferred stockholders have voting rights similar to common
stockholders
- C. Preferred dividends must be paid before common stock dividends
- D. Firms can be forced into bankruptcy for failing to pay preferred stock
dividends

20. **Which factor is least likely to be a focus of venture capital conferences?

- A. The startup’s growth potential
- B. The strength of the startup’s business model
- C. The existing profitability of the startup
- D. The expected returns for venture capitalists

21. **What is a significant risk associated with private stock exchanges?

- A. High liquidity risk due to limited trading volumes
- B. Stringent regulations by the SEC
- C. Required public disclosure of financial statements
- D. Restrictions on selling shares to institutional investors

22. **A major advantage of shelf registration for issuing firms is:
- A. The ability to issue securities without disclosing financial details
- B. Avoiding underwriting fees during secondary stock offerings
- C. Quick access to capital without a lengthy registration process
- D. The flexibility to issue debt instead of equity
23. **Which of the following is true about flipping shares in the context of
IPOs?
- A. It typically results in long-term losses for institutional investors
- B. It involves purchasing IPO shares and quickly selling them for a profit
- C. It ensures the price stability of shares post-IPO
- D. It leads to underpricing by the underwriters

24. **In laddering during an IPO, brokers encourage investors to:

- A. Buy shares only at the opening price
- B. Place bids higher than the offer price to create upward price
momentum
- C. Sell their shares immediately to lock in quick profits
- D. Avoid institutional investments and focus on retail customers

25. **Stock market indexes like the Dow Jones Industrial Average (DJIA) are
primarily used to:
- A. Evaluate the performance of all stocks in the market
- B. Track the daily performance of small-cap stocks
- C. Provide a benchmark for comparing the performance of individual
stocks
- D. Reflect the financial performance of new IPOs