INSTITUTE OF BANKERS OF SRI LANKA
Diploma in Applied Banking and Finance (DABF)
Investment Banking - Guidance Questions
a) The questions below are provided to guide students and teachers in their
studies on the subject as per the syllabus.
b) Each question will carry 20 marks distributed as 5 marks for each subquestion.
c) It is expected that about 30-35 minutes will take to answer a question.
d) Precise answers are expected in points. Detailed essay typed long answers
are not expected.
1.
Although investment banks have specific lines of financial business nowadays,
investment banking has evolved with greater links with commercial banks as
subsidiaries or business units within commercial banks. Answer the following
questions.
i)
Outline how the Glass Steagall Act and the Gramm-Leach-Bliley Act in the
US influenced the link between the investment banking and commercial
banking?
ii)
Why is investment banking partly blamed for the current global financial
crisis?
iii)
The leading Wall Street investment banks in the US were affected by the
above financial crisis. Name those investment banks and state what
happened to those banks due to the crisis.
iv)
What is the impact of the Volcker Rule in the US on investment banking
activities of commercial banks?
2.
One of the financial market products that investment banks structure for credit
institutions is the securitization. Answer the following questions
i)
What are the key steps involve in securitization?
ii)
Who are the parties involved in a securitised product “known as Assetbacked Securities” and outline their role?
3.
iii)
What are the benefits of asset-backed securities to credit institutions?
iv)
What is the nature of a mortgaged-backed security?
Investments banks undertake the management of issues of shares and bonds for
their corporate clients. Briefly answer the following questions relating to
investment banking service in this regard.
i)
What is the purpose of release of prospectus involved in the issue
management? What are the key contents in such prospectus?
ii)
What is the nature of rating advisory service provided by the investment
banks?
iii)
What is the nature of book building service provided by investment
banks?
iv)
What is the nature of service of investment banks as book-runners in
respect of issue management?
4.
Investment banks in developed financial market play a key role on leveragebuyouts. Answer the following questions.
i)
What is meant by a leverage buyout? What is the purpose of a leverage
buyout?
ii)
Who are the key participants involved in a leverage buyout and what is
the role of each participant?
iii)
Outline the service of investment banker in a leverage buyout.
iv)
Briefly explain the benefits expected from a leverage buyout?
2
5.
Mergers and acquisitions (M&A) have been a major business strategy pursued
by the corporate world and investment banks provide a leading role for M&As.
Answer the following questions
i)
What is the difference between buy-side M&A and sell-side M&A?
ii)
Briefly outline the major steps involved in a sell-side M&A?
iii)
What are the objectives of a buy-side M&A?
iv)
Outline the difference between stock sale and asset sale of an M&A deal
structure and compare their advantages and disadvantages.
6.
Investment banks provide a number of financial services to financial markets and
corporate customers. Outline the nature of following financial services and their
benefits to markets and corporates.
7.
i)
Equity research reports
ii)
Loan syndication
iii)
Proprietary trading
iv)
Investment advice
Investment banks provide business restructuring service to corporates. Answer
the following questions.
i)
What is meant by business restructuring?
ii)
What are the reasons that may cause business restructuring of a company?
iii)
What are the specific restructuring solutions for each type of reasons
mentioned above?
iv)
Outline the good bank and bad bank model used for restructuring
/resolving of an insolvent bank/deposit-taking institution. Could
investment banks use this model for restructuring of solvency-threatened
companies? Why?
3
8.
Valuing a company, division, business or collection of assets is also a service
provided by investment banks and such valuation involves several steps in the
process. Outline following preparatory steps involved in valuation under the
method of “Comparable Companies Analysis”.
9.
i)
Selecting the universe of comparable companies
ii)
Locating the necessary financial information
iii)
Spread key statistics, ratios and trading multiples
iv)
Benchmarking the comparable companies
Investment banks confront several criticisms in the financial market and such
criticisms are leveled on the business conduct. Outline the nature of allegations
and state your response.
10.
i)
Conflict of interest and market manipulation
ii)
Front running practices
iii)
Mis-selling of risky products to clients who do not understand such risks
iv)
High compensation to employees at the cost of clients
In Sri Lanka, investment banking activities are limited when compared to those
in Western and East Asian financial markets. However, various banks and
financial institutions offer some investment banking services. Answer the
following questions.
i)
What are the reasons for the low level of investment banking in Sri Lanka?
ii)
List the investment banks operating in Sri Lanka and highlight their
corporate structures.
iii)
Outline major investment banking services offered in Sri Lanka
iv)
What do you think about future prospects of investment banking in Sri
Lanka? Give your reasons
4
11.
Outline the role of investment banks in the following financial products/services
and their nature.
i) Depository for Depository Receipts
ii) Zero Coupon Bonds
iii) Offer-for-sale
iv) Initial Public Offer
12.
Investment banks perform as capital market intermediaries together with related
services when compared with wider intermediary role and intermediation
services of commercial banks. Answer the following questions.
i) Outline the fund based business of investment banks as capital
intermediaries.
ii) What is the source of funds for the above business?
iii) Outline the most conventional fee-based business of investment banks.
iv) Do investment banks tend to compete with commercial banks to become
financial intermediaries? Why?
5