Term
| What is the role of an IB? |
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Definition
| Intermediaries between clients and financial Markets. Help raise capital for companies and provide finance advising. Structure transactions to best meet the needs of clients |
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Term
| How to measure quality of an I-Bank |
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Definition
| Banks expertise in a specific product group or industry. League table rankings. Prestige (reputation) |
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Term
| What is the breakdown of an IB? |
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Definition
| "Banking: Financing, Advisory. Sales and Trading: Fixed Income, Currencies, Commodities, and Equities. Research: Equity and Fixed Income. Asset and Wealth Management" |
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Term
| Sales can be broken into what 3 components for an IB? |
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Definition
| "Salespeople make money through commissions on trades or % of clients assets. Classic Retail Broker, Institutional Sales, and Private Client Service." |
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Term
| What are typical components of an IB division? |
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Definition
| "Coverage Groups: Geographical, Industry. Product Groups: M&A, Equity Capital Markets, Debt Capital Markets, FX" |
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Term
| What are typical components of a Sales and Trading division? |
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Definition
| "Fixed Income, Equities, and Principal Investments" |
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Term
| What is the role of Traders? |
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Definition
| Provide liquidity and Proprietary trading |
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Term
| What is the role of Research? |
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Definition
| "Follow stocks and bonds and make recommendations on whether to buy, sell or hold securities. " |
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Term
| What is the role of a syndicate? |
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Definition
| Provides the link between salespeople and corporate finance. Facilitate the placing of securities in an IPO and the allocation of bonds. |
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Term
| What is the difference between commercial banks and IB? |
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Definition
| "Commercial banks take deposits for checking and savings (FDIC), and use the proceeds for loans. IB does not typically lend, but raise capital through selling of equity or debt. IB are increasingly becoming a one-stop shop." |
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Term
| What is the Glass-Steagall Act of 1934? |
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Definition
| Prohibits banks / security companies from affiliating |
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Term
| What is the significance of Gramm-Leach-Bliley Act of ‘99 in relation to the securities industry? |
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Definition
| "Permits convergence of banking, insurance and securities businesses under one holding company |
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Term
| What is the difference between buy-side and sell-side? |
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Definition
| Traditional IB is considered sell-side. IB create stocks and bonds and sell the securities to investors. IB would also represent sell-side for a divestiture. Buy-side - individual or institutional investors. LBO's and PE shops are also buy-side. |
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Term
| What are some products of M&A? |
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Definition
| "Sell-side and buy-side assignments, Merger of Equals, JV, Public market separation (carve-out, spin-off, tracking stock) and Hostile Defense. |
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Term
| What are some common valuation techniques? |
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Definition
| "Discounted cash flow, Publicly-traded comparable companies analysis, Comparable transactions analysis, Leveraged buyout/recap analysis, Sum-of-the-parts analysis, Break-up or net asset value analysis, Liquidation analysis. |
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Term
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Definition
| Bull market occurs when stock prices measures by an index increase and Bear market occurs when stock prices fall. |
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Term
| "Highlights of the DOW, NASDAQ, S&P and Russell 2000?" |
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Definition
| DOW: 30 large-cap stocks NASDAQ: Electronic market of mostly technology related stocks S&P500: 500 of the largest traded companies Russell2000: 2000 small-cap firms |
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Term
| What moves the stock market? |
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Definition
| Corporate profits and economic policies |
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Term
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Definition
| "Value: Low P/E ratios, pay dividends. Growth, High P/E ratios, have imbedded future growth in the stock price." |
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Term
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Definition
| "Comprised of the following securities which are traded: US Govt Treasury securities, Agency bonds, High-grade corporate bonds, High-yield bonds, Municipal bonds, Mortgage backed securities, Asset-backed securities, and Emerging market bonds. |
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Term
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Definition
| Measure of the yields of different maturity US government securities. |
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Term
| What is the most common bond index? |
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Definition
| "Lehman Government Corporate Bond Index (""LCG"") - Measure the returns on mostly government securities, but blends in a portion of corporate bonds." |
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Term
| How is a spread of a bond determined? |
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Definition
| The difference between a bonds yield and the yield on a US Treasury bond of the same time to maturity. |
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Term
| What are the factors affecting the bond market? |
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Definition
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Term
| What are the 4 most important economic indicators? |
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Definition
| "GDP, CPI, Producer Price Index, Unemployment and Wages" |
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Term
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Definition
| "Increased capital, Improved financial position, Less dilution, Enhanced ability to raise equity, Liquidity and valuation, Improved credibility with business partners, Better employee morale and productivity, Personal wealth" |
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Term
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Definition
| "Disclosure of information (quarterly disclosures), Management demands, Pressure to maintain growth, Less control, Greater legal exposure, Enhanced corporate governance, Expense" |
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Term
| What is the typical process of an IPO? |
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Definition
| "Phase 1 - Hiring Managers: Pitching / Beauty Contests -> Select Managers Phase 2 - Due Diligence: Meeting with Parties, Due Diligence, Draft Prospectus, Meeting at the printer Phase 3 - Marketing: Design Road show Slides, Amend Prospectus, Road show, Stock begins trading" |
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Term
| Why issues bonds over equity? |
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Definition
| 1.) Stock price of the lessor is down 2.) Don’t want to dilute existing shareholders 3.) Tax deductions |
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Term
| What is private placement? |
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Definition
| Selling of debt or equity to private investors to gain critical mass for an IPO. Do not require any securities to be registered with the SEC. IB's role is similar to a sell-side M&A engagement. |
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Term
| Describe the Chinese wall |
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Definition
| "Between Banking and Research, Between Banking and Sales/Trading, Restrictions within Banking limit information flow to only those actually working on deal, Capital Markets groups are brought “over the wall” to execute financings |
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Term
| How does a negotiation vs. a bought deal differ? |
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Definition
| Fully marketed (Issuer bears share price risk) – Negotiated Transaction. Block trade (Investment bank bears share price risk) – Bought Deal |
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Term
| Characteristics of an LBO? |
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Definition
| "Funds which focus on investment opportunities where increased corporate leverage, cost cutting and management reconfiguration can lead to improved cash flow." |
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Term
| Explain what a green shoe is? |
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Definition
| "Green Shoe: the industry name for an over-allotment option, coming from a company called the Green Shoe Manufacturing company." |
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Term
| What does VAR stand for and what does it represent? |
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Definition
| Value At Risk – statistical measure for risk in different business. VAR gauges the potential loss from adverse market moves in an ordinary market environment |
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