Conflicts of Interest Exist in the Investment Banking Industry

question 48

Multiple Choice

Conflicts of interest exist in the investment banking industry.In 2002 ten of the top U.S.investment banking firms agreed to pay a total of $1.4 billion in fines and they are also required to

• A) use the Dutch auction process for any new IPOs.
• B) use the English auction process for any new IPOs.
• C) purchase independent research from third parties.
• D) all of the above

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Definitions:

Step-Wise Variable Cost

A cost that remains fixed within a certain level of activity but will jump to a higher amount at a certain point due to increased activity.

Variable Costs

Costs that change in proportion to the level of activity or production volume.

Cost-Volume-Profit Analysis

An accounting method used to determine the effects of changes in costs and volume on a company's profits.

Relevant Range

The range of activity within which the assumptions about fixed and variable cost behavior are valid.