Investment Banking Related Questions

1. ECN is _________ driven
a. Order
b. Market
c. None

2. Primary function of exchange is
Provide liquidity
Provide Info
Protect Investor
Conduct Auction

3. A Xyz airline has just completed an IPO & its stock is going to be traded 4pm
15th march. Where it will be traded?
Primary
Secondary
Derivative
None

4. For Call option stock price is 100 and strike price is 105 …the option is in
a. In the money
b. Out the money
c. at the money

5. Which is not a methodology of equity (IPO)
a.DCF
b.Internal Rate Return
c.Relative value valuation
d.Divident growth rate

6. A question on Reconciliation:-

Ans:- Settlement System Integrity Reconciliation: This reconciliation intends to prove that the settlement system is in balance i.e. the total of securities owned is equal to the sum of the location position. If the firm employs double-entry bookkeeping, theoretically this will be true by default. Still this reconciliation must be performed frequently to prove that the system is in balance.

7. Find the correct order - Order,trade,confirmation,affirmation,NOE
Ans: order, NOE, trade, confirmation, affirmation


8. Which is a derivative market
LSE,CBOE,NYSE

9. The custodian having worldwide network of sub-custodian is
1. Local custodian
2. Global custodian
3. NCSD
4. ICSD



10. on a margin call
1. The broker draws fund from the margin acc
2. The investor adds fund to the margin acc
3. The broker adds fund to margin acc
4. The investor draw fund to margin acc

11. What is the function of Agents in Clearing??

12. Which one is correct?
Answer:
a) If a buyer of securities is unable to make payment for the purchase, he can be made to go through a sell-out procedure.
b) Securities-driven transactions have one more objective. Continued failure of the seller to make a good delivery can cause the buyer to invoke buy-in procedures. In a buy-in, the buyer buys the necessary quantity of securities at the current market price. The securities are then delivered to the buyer and any additional costs incurred in the buy-in are charged to the original seller.
13. Prime broker works on behalf of which brokerage:-
a) Retail Brokerage
b) Investment Brokerage
c) None of these
c) Discount Brokerage
14. Define prime brokerage transaction
Ans: The executing broker gives up to the prime broker

15. Which of these isn’t a custodian function?
a. Provides a daily statement
b. Safekeeping securities
c. Central counterparty
d. Securities lending/ borrowing facilities
e. Holds securities on behalf of an investor
f. Settlement of transaction and collecting income
g. Global Custody

Which of these is not a function of loan syndication?
a. Contact management,
b. Book building
c. Tracking Customer appetites for debt
d. Market tracking
e. Maintaining deal calendars
f. Security lending


abc corporation has a market capitalization of 600 million $. They decide to split shares in the ratio of 3:1. What will be the market capitalization of abc after stock split?
600 mn $
1200 mn $
1800 mn $
2400 mn $

18. Institutional investors may execute their orders through
a. Buy side Order Management Systems (OMS)
b. “Direct Market Access (DMA)”
c. Sell side Order Management Systems (OMS)
d. All of the above

Which of the following is not a money market instrument?
Treasury bills,
commercial paper,
Repos
Forex options

Which of these is not a func of I-bank?
Loan syndication
Treasury activities
Transactions financing and cash management
Sales and trading


Which of the following is securitized product?
Convertible bonds
Unsecured debt with put options for investor
Variable rate bonds with warrants
Bond backed by credit card receivables

What does a company goes public?
Greater scrutiny
To increase market capitalization
Gain ratings
Cant remember the option

Answer: The Company cannot reasonably expect to raise venture capital from institutional funds.
The company needs to raise a very large amount of capital (greater than $15 million) and it is difficult or time consuming to raise this amount through private placement alone
The company requires a significant amount of capital permanently that it won't have to pay back to a bank or other lender.
A company seeks growth through acquisitions, and needs a "currency" other than cash to attract and consummate deals.



A buys a call option with a strike price of Rs 378 and premium Rs. 5. On the expiry day under which scenario will he exercise his option
Price is Rs.400
Price is Rs.378
Price is 373
Doesn’t depend on the price

When is a notice of execution send and by whom
At the point of sale, seller
After executing the order, exchange
After placing the order, Trader
None
A corporate client is likely to use the services of an IB for
Buying other company
Streamlining its receivable management
Raising money through capital market
Obtaining a credit rating

26. How many max investors are allowed in hedge funds?
a. 25
b. 100
c. 500
d. 1000

27. Nasdaq
a.dealer
b.broker
c.market maker

28. Roles of investment Banks involves except
Deposit money

29. What is meant by Naked Writing?
Ans: Derivatives: Payoff to seller of Put Option

30. Question on STP :
The benefits of STP and a T+1 settlement are manifold:
· The most tangible benefit is cost and time savings by virtue of reduction in settlement cycle.
· Reduction in default risk as a T+1 settlement would mean streamlined clearing and settlement latest by the next day of trading.
· It would lead to fewer transaction errors and hence bring down costs associated with correcting these errors.
· Reduction in operational risk due to minimal manual intervention.

31. Market data information providers like Bloomberg and Reuters.
32. Front office Function: Collateral Management


33.
Equity
MACD, Moving average of price, RSI
Fixed Income
Yield to Maturity or Asset swap arbitrage pricing for securities
Zero Coupon Yield Curve
Derivatives
Greeks (Delta, Vega), Volatility Surfaces
Credit Trading, Loans
Sensitivities to default rates, LGD (Loss given default), EDF (Estimated default frequency)
34. choice of brokers to place an order:
35. Question Best Execution
Ans: The opportunity for "price improvement" – which is the opportunity, but not the guarantee, for an order to be executed at a better price than what is currently quoted publicly – is an important factor a broker should consider in executing its customers' orders. Other factors include the speed and the likelihood of execution.

36. Risks associated with the Custodian’s role
The areas that a custodian must pay careful attention to include:
· Holding of securities and cash
· Acting upon settlement instructions
· Deliveries and receipt of physical securities and cash
· Management of corporate actions
· Failure to focus on these areas introduces the risk of loss from both the account holder’s and the custodian’s perspective.
37. Types of reconciliation
The list of reconciliation is depicted in the figure below (the dashed arrows represent reconciliation):
Trade-by-Trade Reconciliation: This is an automated reconciliation that proves that all trades captured by the traders are successfully captured within the settlement system. Not conducting this reconciliation can result in failure to process individual trades. The possibility of trades not coming into the settlement system is very much there. That’s why this reconciliation is important. Its importance will increase as the settlement cycle shrinks.
Trading Position Reconciliation: This reconciliation is designed to prove that the trade dated security positions calculated by the trading system agree with the equivalent positions calculated by the settlement system. Not conducting this reconciliation can result in trades being executed from the incorrect trading position, where the trading system is found to be incorrect. Discrepancies can arise where trades have not been received by the settlement system, and where trade amendments and cancellations have been effected within one system but not the other.
To be certain of being in a fully reconciled position, both the trade-by-trade and trading position reconciliations should be done.
Open Trades Reconciliation: This reconciliation aims to prove that open trades held within internal books and records are actually open at the relevant custodian, or generally have the same status at the custodian.
Custodian Position Reconciliation: The aim of this reconciliation is to prove that settled securities positions held within internal books and records agree with the equivalent positions as advised by the custodian. This is therefore another fundamental control and confirms to the firm that the securities that it believes are held by the custodian are actually held by the custodian.
Settlement System Integrity Reconciliation: This reconciliation intends to prove that the settlement system is in balance i.e. the total of securities owned is equal to the sum of the location position. If the firm employs double-entry bookkeeping, theoretically this will be true by default. Still this reconciliation must be performed frequently to prove that the system is in balance.

38. Pricing/earning ratio…
39 . Question on forward rate:
Spot Rate:
Spot rate is the interest rate on an investment starting today and ending after some specified day. Thus 3 year spot rate from today means the rate of return on an instrument with a three-year maturity and starting from today.
Forward Rate:
A forward rate is an interest rate contracted today on an investment that will be initiated after some time in future. In other words it is spot rate in future.
Forward rates and spot rates are interlinked.
An investment bank that deals mostly in international finance is referred to as a Merchant Banks. Their knowledge in international finances makes merchant banks specialists in dealing with multinational corporations.
Depository Trust Company is a central repository through which members electronically transfer stock and bond certificates (a clearinghouse facility).
One question on “Chinese Wall” – all options were wrong.
43. Securities Underwriting -
Equity Underwriting and Debt Underwriting
44. Question on NSCC
Answer: The largest clearinghouse in the US is the National Securities Clearing Corporation(NSCC). It is owned by brokers and helps broker’s clear trades among themselves. The securities eligible for clearing at NSCC include:
- Corporate bonds and Equities listed on New York Stock Exchange (NYSE) and American Stock Exchange (AMEX)
- Corporate bonds and equities listed on over the counter markets like NASDAQ
- American Depository Receipts (ADRs)
- Municipal bonds

45. Family with two daughters and a son wants to invest their money where they don’t have risk and also get profit.
Where will they invest?
i. stocks
ii. Government bonds
iii. 50% government and 50% multinational bonds
iv. Multinational bonds
46. Brokerage is regulated by_______ in US
47. Out cry Market
48. when put and call options occur at same time – Limit Order
49. Dannis bought 10 shares on 1 july.
On 4th July he sold 6, On 8th July he sold another 6.
At end of 8th July he had how many shares, if he goes through T+2 settlement cycle?
Answer: Prositive, 4
50. Company had 75 core shares, and 50 core shares were given as dividend, so how much was the dividend coverage?
a) 25
b) 1.5
c) 0.667
d) None of these
51. Initial margin is 60%, maintenance margin is 40%, total investment is 5000$
At the end of the day how much should be there?? – Ans: 3000
52. Question on Payment Due date, and Record date? 30th June he has shares, and 1st July is Payment Due date
53. Leverage Finance :
Leveraged finance is commonly employed to achieve a specific, often temporary, objective: to make an acquisition, to effect a buy-out, to repurchase shares or fund a one-time dividend, or to invest in a self-sustaining cash-generating asset.
54. US Trading cycle has- What is true for Settlement? What is true for T+3 trading



55. What is true for Clearing?
Ans: The clearing process is generally taken care of by a Clearinghouse. This is a specialized institution, which takes care of the following:
· Netting
· Determining the obligations of broker-dealers
· Counter party risk guarantee
56. If shares are directly traded in market:-
· Algorithms
· Direct Market Access
· Automatic Trading
· None of these
57. Find the odd one: - Stock Splits, Issuer, Bond, Treasury bills.
58. Company is about to close, what will the company do:-
Stock Splits, Reverse stock, Dividend, none of these.
59. If company’s shares value is going down, what will they do, given time of 4 months? US market is doing well.
Ans: Short term,
60. What is meant by XD?
After the book closure, shares are quoted as ex-dividend, ex-bonus (if bonus has been announced) or ex-rights (if announced) prices, and carry XD, XB, XR after the price figures.
61. Income is positive and yield curve is downwards. True or False.
Ans: False
62. One question on Bid/Ask Price... True or False
What happens to the good till cancelled order at EOD?
a) Cancelled by the exchange
b) Expired
c) Carry forward to the next day
d) Carry forward to the next till the person cancels the order