1. What are the major types of firms in the investment banking industry? Briefly describe each.

2. Why is capital a more important measure of the size of a securities firm than the amount of assets? What other measures would be useful, given the diversity of this industry?

3. Describe an agency transaction (brokerage) and a principal transaction (dealer) that is involved in trading. What determines profits in each activity? Which is riskier?

4. Classify the following trading activities as either a position trade, a pure arbitrage trade, or a risk arbitrage trade.

I. Buy Intel at $120 and hold it for six months in hopes of a price rise.

II. Buy GE on the NYSE and immediately sell it at a higher price on the Pacific Exchange.

III. Short sell Dell in anticipation of a poor quarterly earnings report.

5. What are soft dollar fees or commissions? How can these lead to conflicts of interest for investment bankers?