Chapter 24 Managing in Financi
Chapter 24
Managing in Financial Markets
As a consultant for a securities firm, you are assessing theoperations of a securities firm.
a. The securities firm relies heavily on full-service brokeragecommissions. Do you think that heavy reliance on these brokeragecommissions is risky? Explain.
b. If this firm attempts to enter the underwriting business,would it be an easy transition?
c. In recent years, the stock market volume increasedsubstantially, and this securities firm performed very well. In thefuture, however, many institutional and individual investors mayinvest in indexes rather than in individual stocks. How would thisaffect the securities firm?
Answer:
Ans a) Heavy reliance on brokerage commissions will impact theprofitability of the securities firm because if there is any changein market sentiments and market start performing bad then theremight be the cances that securities firm will not generate enoughreveune which pose the risk to its business. Not only that in caseliquidity issue in market where people are not transacting share sbut holding for long time then also it will impact the brokeragecommissions of the securities firm.
If people investing in indexes then it will hamper theprofitability and revenue of the brokerage firm. So the heavyreliance on the brokerage commissions raise significant risk tosecurities firms.
Ans b) If this firm attempts to enter into the underwritingbusiness, then it won’t be easy transition though it will belogical transaction. It has to form underwriting syndicate byasking other securites firm to underwrite a portion of the stock.In this way securities firm can enter into the underwritingbusiness. Since it has access to already availabel institutionalinvestors it may be possible for it to place the order.
Ans c) Securities firm revenue will be impcated if institutionalinvestors and individual investors invest in indexes rather thanindividual stocks. Firm will able to generate less brokeragecomission and it will impact the bottom line of securitiesfirm.
"Our Prices Start at $11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!"
