Conduct and Practices Handbook Course (CPH) Quiz 42

Competitive sales occur when underwriters make proposals to purchase a new issue of securities, with the securities going to the underwriter (or the underwriting syndicate) offering the lowest bid. This can also be called a public sale or a competitive bid.

Public offerings occur when an entity sells shares to the public for the purpose of raising funds.

Private placements occur when an entity sells share to a small number of specific investors, again for the purpose of raising funds. Investors in private placements are usually larger ones, such as banks and mutual funds.

Notices of sale are announcements made by municipal entities to declare that the entity is now accepting bids from underwriters (or underwriting syndicates) to purchase the issue of a new bond.
(i) Amount and kind of bonds (II) Purpose for selling the bonds (iii) Location and time for bids to be delivered

A broker is a person or institution which acts as a middleman between the buyer of a security and the seller of a security. The broker makes his profit by charging a sales charge, or commission, for arranging the transaction.

A dealer is a person or institution which sells its own inventory to buyers (like a used-car dealer). dealer charges a markdown when he purchases inventory, lowering the price he pays for the inventory; and he charges a markup when he sells it, increasing the price the customer pays for it.

The over-the-counter (OTC) market is also known as the second market (not to be confused with the secondary market, which encompasses all the various ways of trading stock besides new issues). It consists of a nationwide network of brokers and dealers connected by phone and computer who trade non-listed stocks from their offices.

The over-the-counter bulletin board (OTCBB) is a regulated electronic medium for trading over-the-counter (OTC) securities, displaying quotes, recent sale prices, and volume information.

The National Association of Securities Dealers Automated Quotations (NASDAQ) is an electronic market that handles more volume than the NYSE although the market value of the NASDAQ is lower than that of the NYSE.

Electronic communication networks (ECNs) are systems which aim to facilitate more direct trading between traders and brokerage firms. ECNs allow orders to be executed without a third party, especially orders executed by a market maker.

Some municipal bond brokers don’t deal with individual investors or the general public at all .They deal only with other municipal brokers, and large financial institutions, such as banks. A broker in this category is known as a broker’s broker

Corporate bonds are bonds issued by corporations. Whereas Treasury bonds can be backed by the full faith and credit of the U.S. government, corporations do not have that guarantee, and thus generally have higher interest rates.

high-yield bonds are bonds with lower credit ratings than usual corporate bonds (below a “BBB” S&P rating and below a “Baa” Moody’s rating). These are called “junk bonds,”although they are still popular among investors worldwide

Direct paper is sold directly by the financing institution to the public, without going through dealers. Dealer paper is any commercial paper marketed through dealers.

(i) Direct paper (ii) Dealer paper

Certificates of deposit (CDs) are financial instruments offered by banks, having a specific term (Such as six months or one year) and usually having a fixed interest rate.

Brokered certificates of deposit are CDs which are not purchased directly from a bank, but instead mediated by a brokerage firm (or from some other entity besides a bank). These CDs are generally pricier.

Jumbo certificates of deposit are CDs with a minimum face value of $100,000. These are, of course, Ordinarily purchased only by large institutional investors and they are considered to be low-risk

A banker’s acceptance (BA) is commonly used in international transactions. It is the corporate equivalent of a post-dated check, and can have limits of 1 to 270 days. A banker’s acceptance is better than a regular postdated check, however, because the holder has the goods being traded as collateral in case the bank underwriting the acceptance goes under

Asset-backed securities (ABSs) are securities which are backed with some sort of asset as collateral. Asset-backed securities (ABSs) are securities which are backed with some sort of asset as collateral.

Equity-linked securities (ELKSs) are hybrid securities, partly involving debt and partly involving equity. Fundamentally, they are debt securities which will behave like normal debt securities if a specified stock maintains a specific level of performance, but if that stock drops below the minimum
performance level, then the investor receives an amount of stock instead.

Exchange-traded notes (ETNs) are hybrid securities which serve as a mixture of bonds and Exchange-traded funds (ETFs). As their name implies, they are traded on an exchange, although they also have a maturity date like bonds

An exchange rate is the relationship between any two currencies, and it reflects how many units of one currency are required to obtain one unit of the other currency. They change daily, and many different factors can affect them. This constant change in the exchange rate is known as the float.

Spot markets are markets where goods are exchanged for cash and immediately delivered. There is no delay to the purchases, and contracts are effective at once.

When U.S. dollars are deposited anywhere in the world outside the United States, they are called Eurodollars (even if they’re not in Europe).The important thing to remember is that they’re in American dollars, and not the currency of the bank where they’re deposited.

There are four stages of Business cycle. The first phase of the business cycle is expansion. Second phase of the business cycle, the peak. Third phase of the cycle, called contraction. The last phase of the cycle, the trough.

The third phase of the cycle, called contraction. After an economy has peaked, economic indicators and trends gradually go on the downswing due to less
investing and spending.

Inverted yield curve, bonds with longer maturities are displayed as having a lower yield rate. This generally signifies a future recession.

Interest-rate-sensitive stocks are shares of stock whose value is extremely sensitive to changes in interest rates. The price of these stocks will fluctuate widely, for instance, with a modification in the risk-free rate. These stocks will have large beta factors according to the capital asset pricing model.

Two big defensive industries are food products and tobacco products. Defensive industries are those sectors of the economy that sell products that people tend to buy no matter what the state of the economy is.

Cyclical industries tend to sell expensive durable goods, such as automobiles, or the raw materials used to produce durable goods. Cyclical industries are the opposite of defensive industries. The prospects for companies in these industries tend to rise and fall right along with the business cycle