1
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What are the differences between equity and fixed-income securities?
Answer: Fixed-income securities is the securities that provide fixed amount of interest over the years. For example this kind of securities is T-bills.
Equity securities give them ownership and voting right in the Shareholders board. Plus they will receive dividends if company in success or vice versa.
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2
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What is the difference between a primary asset and a derivative asset?
Answer: A primary asset has a claim of the real assets of company, whereas the derivative asset provides a payoff that depend on the price of a primary asset but not the claim on real assets
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3
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What is the difference between asset allocation and security selection?
Asset allocation is the diversification of your portfolio which is more risky you can substitute to another less risky asset.
Security selection is the choice of specific securities within each asset class.
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4
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What are agency problems? What are some approaches to solving them?
Answer: agency problems Conflicts of interest between managers and stockholders.
There are a lot of potential answers to this problem is the compensation income for managers, because managers know the firms future plans if another competing company offers him/her they will move without any doubt, second is the
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5
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What are the differences between real and financial assets?
Answer: Real asset Assets used to produce goods and services
Financial asset Claims on real assets or the income generated by them.
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6
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How does investment banking differ from commercial banking?
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7
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Oversight by large institutional investors or creditors is one mechanism to reduce agency problems. Why don’t individual investors in the firm have the same incentive to keep an eye on management?
Individual investors don't have the same incentive to keep an eye on management because it would be a waste of their time. A large investor pays more attention to the management because their investment is much larger and they stand too lose more. A small investor in a large fortune 500 company would just be wasting their time but that makes more sense for large investors.
Individual investorlar menejmentni kuzatib borish uchun bir xil rag'batga ega emaslar, chunki bu ularning vaqtlarini behuda sarflashdir. Katta investor boshqaruvga ko'proq e'tibor beradi, chunki ularning investitsiyalari ancha katta va ular ko'proq yo'qotishadi. Katta boylik 500 kompaniyasiga kichik investor shunchaki vaqtini behuda sarflagan bo'lardi, ammo bu yirik investorlar uchun mantiqiyroq.
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8
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Wall Street firms have traditionally compensated their traders with a share of the trading profits that they generated. How might this practice have affected traders’ willingness to assume risk? What is the agency problem this practice engendered?
Allowing compensation with a share of trading profits to traders is an agency problem as traders get incentivized but not penalized on trading losses. This encourages them to take extraordinary risks.
This also creates a vicious cycle where the misdeeds of one trader are most likely to be facilitated and carried forward by other traders
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Treyderlarga savdo foydasining ulushi bilan kompensatsiya berishga ruxsat berish agentlik muammosidir, chunki treyderlar rag'batlantiriladi, ammo savdo yo'qotishlari uchun jazolanmaydi. Bu ularni favqulodda tavakkal qilishga undaydi.
Bu, shuningdek, bir savdogarning noto'g'ri xatti-harakatlari boshqa treyderlar tomonidan osonlashtirilishi va oldinga siljishi mumkin bo'lgan ayovsiz tsiklni yaratadi.
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9.
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Why would you expect securitization to take place only in highly developed capital markets?
Securitization usually takes place only in a highly developed capital markets because it needs to attract the potential investors who would usually want:
a safe business environment
business friendly laws
rationalized taxation/regulation regime
developed system of brokerage and financial transaction
developed investment banking systems
developed financial reporting
All the traits mentioned above are found only in a highly developed capital market.
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10.
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Give an example of three financial intermediaries, and explain how they act as a bridge between small investors and large capital markets or corporations.
Commercial banks, Mutual Funds and Pension funds are three examples of financial intermediaries:
Commercial Banks: They represent the largest sectors of financial intermediaries. They accept deposits from customers and offer these as loans on specified interest to businesses.
Mutual Funds: They accept funds from small investors and pool these funds to invest in the security market. They invest these funds on behalf of the current employees or future retirees thereby channelizing transfer of funds from one sector to another.
Pension Funds: They accept funds in the form of small but regular contribution from small investors/employees
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11
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Firms raise capital from investors by issuing shares in the primary markets. Does this imply that corporate financial managers can ignore trading of previously issued shares in the secondary market?
Answers:
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12.
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What are the key differences between common stock, preferred stock, and corporate bonds?
Corporate bonds: Long-term debt issued by private corporations typically paying semiannual coupons and returning the face value of the bond at maturity.
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13.
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Why do most professionals consider the Wilshire 5000 a better index of the performance of the broad stock market than the Dow Jones Industrial Average?
The reason why the Wilshire 5000 is considered a better index of performance of the broad stock market than Dow Jones Industrial Average is because of the very small size of the latter. While the Dow Jones Industrial Average has 30 large corporations in its index, it doesn’t have odd 500 stocks listed in Wilshire 5000. It therefore cannot be considered to represent the overall market.
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14.
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What features of money market securities distinguish them from other fixed-income securities?
The money market securities are part of the fixed-income securities which are very short term (ranging from 3 months to a year). They are highly marketable and due to their very short term maturity, they carry minimal gain or loss. Hence they pose a very low credit risk.
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15.
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What are the major components of the money market?
Some of the major components of the money market are Treasury bills, Certificates of Deposits, Commercial Paper, banker’s acceptances, Eurodollars, Repos and reverses, Federal funds and Brokers’ calls.
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16.
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Describe alternative ways that an investor may add positions in international equity to his or her portfolio.
In order to add positions in International equity, one may also buy American Depositary Receipts or ADRs International Mutual Funds and shares of foreign companies.
Xalqaro kapitaldagi pozitsiyalarni qo'shish uchun, shuningdek, Amerika depozitariy tilxatlari yoki ADRs xalqaro investitsiya fondlarini va xorijiy kompaniyalarning aktsiyalarini sotib olish mumkin.
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17.
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Why are high-tax-bracket investors more inclined to invest in municipal bonds than are low-bracket investors?
The high-tax-bracket investors are more inclined to invest in municipal bonds because their interest income is exempt from federal income taxation. It, therefore, offers highly attractive equivalent taxable yields. The higher the bracket, the more valuable the tax-exempt feature of municipal bonds. Thus, high-bracket individuals tend to hold municipal bonds.
Yuqori soliqqa tortiladigan investorlar kommunal obligatsiyalarga sarmoya kiritishga ko'proq moyil, chunki ularning foiz daromadlari federal daromad solig'idan ozod qilingan. Shunday qilib, u juda jozibador ekvivalent soliqqa tortiladigan daromadlarni taklif qiladi. Qavs qanchalik baland bo'lsa, munitsipal obligatsiyalarning soliqdan ozod qilingan xususiyati shunchalik qimmatlidir. Shunday qilib, yuqori darajadagi shaxslar munitsipal obligatsiyalarga ega bo'lishadi.
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18.
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What is meant by the LIBOR rate? The Federal funds rate?
The LIBOR or London Interbank Offer Rate is the lending rate amongst banks of the London Market. Simply put, this is the rate at which large banks in London are willing to lend money amongst them.
The federal funds rate on the other hand is the rate of interest on very short term loans amongst financial institutions.
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19.
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How does a municipal revenue bond differ from a general obligation bond? Which would you expect to have a lower yield to maturity?
Municipal revenue bond General obligation bond
1. They are backed by the revenues of the project or by the municipal agency running the project.
2. They have lesser guarantee and hence they are more risky in default.
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1 . They are backed by the full faith and credit of the issuer
2. They are backed by the local government and hence is lesser risky in default.
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General obligation bond will be expected to have a lower yield to maturity.
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20.
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Why are corporations more apt to hold preferred stock than are other potential investors?
Corporations find it more apt to hold preferred stock because these preferred stock payments are treated as dividends and not interest on debt. It is therefore they become tax-deductible expenses for the firm. Corporations may exclude 70% of dividends received from domestic corporations in the computation of their taxable income.
Korporatsiyalar imtiyozli aktsiyalarga ega bo'lishni afzal ko'rishadi, chunki bu imtiyozli aktsiyalarni to'lash qarz bo'yicha foizlar emas, balki dividendlar sifatida ko'rib chiqiladi. Shuning uchun ular firma uchun soliqqa tortiladigan xarajatlarga aylanadi. Korporatsiyalar mahalliy korporatsiyalardan olingan dividendlarning 70 foizini soliqqa tortiladigan daromadlarini hisoblashda chiqarib tashlashlari mumkin.
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21.
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What is meant by limited liability?
Limited liability means that the most a shareholder can lose is his original investment in case of corporation’s failure. Their creditors can’t lay claim to the personal asset of the owner (unlike in unincorporated corporations). In other words the owners or stockholders are not personally liable for firm’s obligations i.e. limited liability.
Cheklangan javobgarlik shuni anglatadiki, aktsiyador eng ko'p yo'qotishi mumkin bo'lgan narsa korporatsiya muvaffaqiyatsizlikka uchragan taqdirda uning dastlabki investitsiyasidir. Ularning kreditorlari egasining shaxsiy aktiviga da'vo qila olmaydi (korporatsiya qilinmagan korporatsiyalardan farqli o'laroq). Boshqacha qilib aytganda, mulkdorlar yoki aktsiyadorlar firmaning majburiyatlari bo'yicha shaxsan javobgar emaslar, ya'ni cheklangan javobgarlik.
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22.
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What is the difference between an IPO (initial public offering) and an SEO (seasoned equity offering)?
Difference between IPO and SEO:
IPO
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SEO
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1. It represents the first issue/sale of stock to public by a private company.
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1. It represents the follow on offer of issue of stock to public.
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2. It represents the first sale of .securities to general public.
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2. It represents the additional sale of securities to public.
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23.
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What is the difference between a primary and secondary market?
Difference between primary and secondary market:
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