Multiple Choice
Which of the following is an advantage of the cash payback method when evaluating investments in securities?
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7. Receivables and Investments
Introduction to Investments in Securities
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What key role does an investment bank play in the context of investments in securities?
A
Regulating the stock market and enforcing securities laws
B
Setting interest rates for government bonds
C
Underwriting and facilitating the issuance of new securities to the public
D
Providing insurance coverage for investors' portfolios
Verified step by step guidance1
Understand the role of an investment bank in the financial system. Investment banks primarily assist companies and governments in raising capital by underwriting and issuing new securities.
Clarify the concept of underwriting. Underwriting involves the investment bank purchasing the securities from the issuer (e.g., a company) and then selling them to the public or institutional investors. This ensures the issuer receives the required funds.
Recognize that investment banks also facilitate the issuance of new securities. They help design the securities, determine their pricing, and market them to potential investors.
Differentiate the role of investment banks from other entities. For example, regulating the stock market and enforcing securities laws is the role of regulatory bodies like the SEC, not investment banks.
Understand that investment banks do not set interest rates for government bonds or provide insurance coverage for investors' portfolios. These functions are handled by central banks and insurance companies, respectively.
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