IPO Pricing Mechanism Overview
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Questions and Answers

What is securitization in the context of investment?

  • The process of borrowers directly entering capital markets (correct)
  • The process of dismantling regulatory constraints for international investing
  • The process of selling existing securities among investors
  • The process of creating custom-tailored securities with specific risk exposures

How has globalization impacted the investment environment?

  • Led to the creation of online trading platforms
  • Shifted the focus of investors to primitive securities
  • Encouraged international investing in worldwide environments (correct)
  • Increased regulatory constraints on investment activities

What is financial engineering primarily focused on?

  • Unbundling assets for online information dissemination
  • Designing hybrid securities with custom-tailored characteristics (correct)
  • Aggregating loans into pass-through securities
  • Transforming communication networks in the economy

How has the revolution in information and communication networks impacted the financial sector?

<p>Led to the rise of Internet investment banking (D)</p> Signup and view all the answers

What trading platform is an electronic order matching system connecting brokers to the PSE?

<p>PSEtrade XTS (A)</p> Signup and view all the answers

Which system does the government use to sell securities to primary dealers?

<p>ADAPS (D)</p> Signup and view all the answers

What type of securities are directly purchased through underwriters?

<p>Commercial papers (C)</p> Signup and view all the answers

Which entity launched a new trading system for the PDEx Fixed Income Market?

<p>Philippine Dealing and Exchange Corp. (PDEx) (A)</p> Signup and view all the answers

What is the purpose of allocating shares based on bids in the underwriting process?

<p>To minimize underpricing of the shares. (D)</p> Signup and view all the answers

What distinguishes securities exchanges from over-the-counter markets?

<p>Securities exchanges only allow trading among members, while over-the-counter markets are open to everyone. (B)</p> Signup and view all the answers

Why are IPOs marketed to investors at attractive prices?

<p>To attract more institutional investors to the IPOs. (D)</p> Signup and view all the answers

What adds value to brokerage firms in securities exchanges?

<p>The possession of a large number of seats on the exchange. (A)</p> Signup and view all the answers

What is one reason why discounts on IPOs may seem unfair to small investors?

<p>Small investors receive less valuable information compared to institutional investors. (A)</p> Signup and view all the answers

How have upstarts like Wit Capital and Hambrecht impacted the underwriting market?

<p>They have caused concern about potential future disruptions to traditional practices. (D)</p> Signup and view all the answers

How do underwriters (investment bankers) manage the risk associated with underwritten issues?

<p>By bearing the price risk of underwritten issues and unmarketable securities. (D)</p> Signup and view all the answers

Based on the text, why have IPOs been considered poor long-term investments?

<p>Because IPOs typically underperform other firms of the same size in the long term. (C)</p> Signup and view all the answers

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