Raising Capital through Shares

What is a major constraint in setting up or expanding a business on a large scale?

Availability of technology
Availability of skilled labor
Availability of raw materials
Availability of capital (correct)

Why is depending on a limited pool of savings from friends and relatives a limitation?

Because they may not be interested in investing
Because they may not be willing to take risks
Because they may not have the necessary business expertise
Because they may not have sufficient funds (correct)

What is an alternative to depending on a limited pool of savings from friends and relatives?

Partnering with a venture capital firm
Selling shares of the company to the public (correct)
Borrowing from a bank
Applying for a government grant

What is a key characteristic of investment banking firms that set them apart from other financial institutions?

They underwrite and distribute securities (A) Signup and view all the answers

What is the benefit of selling shares of a company to the public?

It enables business owners to raise money from a wider pool of investors (C) Signup and view all the answers

What is a common activity of investment banking firms that requires them to commit their own capital?

Trading securities on their own account (B) Signup and view all the answers

Why do investment banking firms need to commit their own capital in certain activities?

To manage risk and hedge their positions (B) Signup and view all the answers

What is the term for selling shares of a company to the public?

Issuing shares (D) Signup and view all the answers

What is a consequence of investment banking firms committing their own capital?

They can increase their leverage and take on more risk (D) Signup and view all the answers

What is a potential risk of investment banking firms committing their own capital?

They may face significant losses if their investments do not perform well (A) Signup and view all the answers

What is a primary way investment banking firms utilize their own capital?

Trading securities for their own account (A) Signup and view all the answers

Which of the following activities typically involves investment banking firms committing their own capital?

Market making (B) Signup and view all the answers

What is an example of a principal investment made by an investment banking firm?

Buying a stake in a publicly traded company (A) Signup and view all the answers

Why do investment banking firms commit their own capital to various activities?

To generate revenue through trading and investments (A) Signup and view all the answers

What is a potential risk associated with investment banking firms committing their own capital?

Potential losses due to market volatility (A) Signup and view all the answers

What is the second role in the context of financial investments?

Assisting investors in secondary market transactions (C) Signup and view all the answers

In what type of market transactions do assisting investors play a role?

Secondary market transactions (B) Signup and view all the answers

What is the primary function of assisting investors in the secondary market?

Acting as a broker or dealer (A) Signup and view all the answers

In what capacity do assisting investors act in the secondary market?

As brokers or dealers (B) Signup and view all the answers

What is the ultimate goal of assisting investors in the secondary market?

To facilitate transactions between buyers and sellers (B) Signup and view all the answers

What is a source of revenue for the bank from outside clients?

Executing trades through the trading desk (B) Signup and view all the answers

What service does the research division provide to outside clients?

Investment advice (D) Signup and view all the answers

How do outside clients interact with the bank's trading desk?

By executing trades through the trading desk (D) Signup and view all the answers

What is the role of the trading desk in the bank's revenue generation?

Generating revenue through trading commissions (C) Signup and view all the answers

Why is the research division's investment advice valuable to outside clients?

Because it allows clients to execute trades through the trading desk (C) Signup and view all the answers