EOC solutions Chapter 16

EOC solutions Chapter 16 - Answers to Chapter 16 Questions...

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Answers to Chapter 16 Questions: 1. As with all intermediaries, these firms bring together those who may need extra money with those who wish to invest their money. This may take the form of an investment banker underwriting an IPO for a growing company or a brokerage firm finding good investment for a client. 2. Beginning in 1980 and until the stock market crash of October 19, 1987, the number of firms in the industry expanded dramatically from 5,248 in 1980 to 9,515 in 1987. The aftermath of the crash included a major shakeout, with the number of firms declining to 6,016 by 2006. Concentration of business among the largest firms over this period increased dramatically. Some of the significant growth in size came through M&A by the top-ranked firms. Indeed, most of the mergers in the industry. Many recent M&As are inter-industry mergers (e.g., among insurance companies and investment banks). The financial crisis resulted in a second major change in the structure of the industry. The five largest investment banks in existence at the beginning of 2008 (Lehman Brothers, Bear Stearns, Merrill Lynch, Goldman Sachs, and Morgan Stanley) were all gone as investment banks by the end of the year. Lehman Brothers failed at the start of the financial crisis, Bear Stearns and Merrill Lynch were acquired by financial services holding companies (J.P. Morgan Chase and Bank of America, respectively), and Goldman Sachs and Morgan Stanley requested and were granted commercial bank charters. 3. The firms in the security industry vary by size and specialization. They include: a) National, full-line firms operating as commercial bank holding companies are the largest of the full service investment banks. They have extensive domestic and international operations and offer advice, underwriting, brokerage, trading, and asset management services. The largest of these firms include Bank of America (through their acquisition of Merrill Lynch), Morgan Stanley, and J.P. Morgan (through its many acquisitions including that of Bears Stearns, for $240 million in 2008). b) National firms specializing in corporate finance and trading, such as Goldman Sachs, Salomon Brothers (Citigroup), and Morgan Stanley. c) Large investment banks that maintain more limited branch networks concentrated in major cities operating with predominantly institutional client bases. These firms include Lazard Ltd. and Greenhill & Co. d) Specialized discount brokers providing trading services such as the purchase and sale of stocks, without offering any investment tips, advice or financial counseling. e) Regional securities firms that offer most of the services mentioned above but restrict their activities to specific geographical locations. f) Specialized electronic trading securities firms (such as E*trade) that provide a platform for customers to trade without the use of a broker. Rather, trades are enacted on a computer via the Internet.
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  • Spring '12
  • venture capital firms, investment bank, securities firms

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