Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 18, Problem 5Q
Summary Introduction
To determine: The reason they so concerned about making careful investigation.
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Students have asked these similar questions
Which of the following should a bank do if they wish to engage in both security rating and investment banking?
Group of answer choices
a. Restrict prepublication of analyst reports to research personnel only
b. Base compensation for analysts on positive ratings of securities
c. Place analysts in the supervisory organization under sales personnel
d. All of the above
Which of the following statements is INCORRECT ?
Large investment banks finance most of their activities by using retail consumer deposits as the primary source of funds.
Failure to monitor the actions of firms in a timely and complete fashion after purchasing securities in the firms exposes investors to agency costs.
As a delegated monitor, a financial institution's actions reduce agency costs.
Financial institutions provide economies of scale in transaction costs
How do disclosure requirements help limit excessive risk taking by banks?
Chapter 18 Solutions
Intermediate Financial Management (MindTap Course List)
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- Auditors and regulators are reminding firms to look closely at their accounts payable to be sure they haven’t inadvertently created debt that might alter leverage ratios and violate other loan covenants. What's the deal?arrow_forwardWhich of the following finance options is given to businesses by their suppliers? O Commercial Paper O Trade Credit O Unsecured loan O Corporate bonds What is the value of an independent audit? O t is an independent opinion about the accuracy of financial statements. O It creates an income statement and balance sheet. O it guarantees the company has not committed fraud. O It is not necessary if the company uses GAAP.arrow_forwardDiscuss the advantages and disadvantages of regulatory forbearance in banking. How useful has it been in mitigating COVID-19 stress on banks? Give some examplesarrow_forward
- Why are foreign banks or insurance corporations cannot deposit securities with the SEC?arrow_forwardIn thinking about overcoming the negative publicity and securities fraud fines related to revenue fraud, some companies succeed and move on, while others fail following the fraud. What forces might influence corporate “survivability” in the face of financial reporting fraud related to revenue?arrow_forwardRegulatory reviews include an assessment of capital, asset, quality, management, earnings, liquidity, and sensitivity to financial market conditions. Many types of strategies can result in more favourable regulatory reviews based on some criteria, but lessfavourable reviews based on other criteria. The financial institution is planning to issue more stocks, retain more of its earnings, increase its holdings of Treasury securities, and reduce its business loans in the commercial bank operations. It has historically been rated favourably by regulators, but the financial institution believes that these strategies will result in an even more favourable regulatory assessment. Which regulatory criteria will be affected by the financial institution’s strategies? How?arrow_forward
- Investment Banks operate and earn profits by: a) Purchasing undervalued securities on the market b) Creating and marketing new financial securities for issuers. c) Underwriting existing security issues, and selling them at a discount. d) Issuing stocks and bonds based on their own credit. e) Purchasing and reselling existing undervalued stocks and bonds. f) None of the other answers.arrow_forwardWhich of the following is true of the current state of financial regulation for financial institutions (FIs)? Most banks can transfer risk on a greater scale and in more complex ways than before. Most FIs now conduct virtual global business, reducing the influence of very large FIs. Most global financial money and capital markets are deliberately disconnected. Most securities exchanges have required majority ownership by resident nationals.arrow_forwardi)discuss accounting issues in risk management, and explain the following terms: fair value hedge, cash flow hedge, foreign investment hedge, speculation ii)discuss some of the famous cases in which the lack of proper risk management policies and procedures have caused companies to incur large losses. iii)explain some general guidelines that senior management should follow to set up and maintain an effective risk management system. iv)explain how a currency swap can be used to hedge a stream of foreign cash flows. v)define interest rate derivatives, and compare and contrast them against bond derivatives.arrow_forward
- Explain commercial banks’ brokerage and intermediation functions. Clearly detail how these functions help overcome the information costs, liquidity risk and price risk arising from financial investments.arrow_forwardWhich of the following statements regarding securities firms and investment banks are not true? OA One of the major functions of investment banks is to originate and underwrite new securities issued by industrial firms or governments OB. The merger activities in secruities firms and investment banks have increased in recent years due to the Financial Services Modernization Act of 1999 OC. Initial public offerings are first time security issuances of firms whose securities have not previously traded in any security exchanges. OD. In a public new security offering, investment banks place the newly issued securities with a selected number of private, usually wealthy, investors.arrow_forwardBank regulation cannot eliminate risk and does not prevent bank failure. It cannot guarantee that bank management will make good decisions especially in high-risk lending and investment. However, bank regulation can enhance safety and stability of the banking industry. Therefore bank regulation is justified. Do you agree or disagree? Please explain your answer.arrow_forward
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