Mutual funds are managed by an investment company. The owners of the mutual fund are different from the shareholders. The investment company owners do not, necessarily, invest in the mutual funds they are managing. Discuss whether this situation results in an incentive for the owners of the investment company to charge higher fees to the mutual funds investors.

Mutual funds are managed by an investment company. The owners of the mutual fund are different from the shareholders. The investment company owners do not, necessarily, invest in the mutual funds they are managing. Discuss whether this situation results in an incentive for the owners of the investment company to charge higher fees to the mutual funds investors.

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter13: Investing In Mutual Funds, Etfs, And Real Estate

Section: Chapter Questions

Problem 3LO

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The example of denomination intermediation function of mutual funds/unit trusts is investing short-term funds in off-balance sheet activities. investing in securities sold in high denomination that otherwise may be out of reach of retail investors. transforming short term sources of funds into long term investments by taking short term deposits to fund long term loans. transferring of funds from one generation to another.
Which statement is not correct? A. The main objective (role) of financial intermediaries is to convert savings of SSU’s into investments. B. Financial intermediaries purchase financial claims with a set of characteristics from DSU’s and sell financial claims with characteristics tailored to the desires of the SSU’s. C. Financial intermediaries normally absorb the risks from SSU’s and manage the risks by investing the funds received from SSU’s into various securities. D. Financial intermediaries serve solely as intermediaries with the financial markets and never serve as investors. E. none of the above
Secondary Intermediaries are called as such because they depend heavily on other financial intermediaries like commercial banks to loanable funds. Included in this category are finance companies, mortgage banks, and real estate investment trusts. It is true or false?
a. The purchase of mutual fund shares. b. Depositing in a credit union. c. Borrowing from a friend or relative. d. Employee contribution to a pension fund. Which ones of the above are examples of indirect financing? a and b a, b and c a, b and d a, c and d all of the above.
Which statement best defines a mutual fund? a. It is a fund set aside by a local government to lend to small firms who want to invest in projects that are beneficial to the firm and community. b. It is an institution that sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. c. It is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks and bonds. d. It is a financial market where small firms agree to sell and bonds to raise funds.
Individuals are net demanders fund in financial institutions. Select one: True False
Explain how the composition of a small community bank’s investment portfolio differs, in general, from the composition of a large bank’s portfolio. Why might mutual funds be attractive to banks?
The financial markets play an important role in channeling funds from savers to borrowers. Which of the following illustrates this function of financial markets? Investors purchase assets like real estate and gold from other investors. Investors purchase capital goods which are used in production by borrowers. Investors deposit funds into interest-bearing accounts which are then loaned to borrowers. Investors purchase securities that are issued by firms and governments.
Under the ethical standards of the profession, which of the following investments in a client is NOT considered to be a direct financial interest? A. An investmentheld through a nonclient regulated mutual fund. B An investment held through a nonclient investment club. C. An investment held in a blind trust D. An investment held by the trustee of a trust.
What lessons can the fund management industry learn from the Woodford investment scandal?
Suppose your firm raises funds from outside lenders. What type of agency costs might occur? How might lenders mitigate the agency costs?
Which of the following is true ? Select one : a . Investment bankers earn a spread based on the success of their placements when they underwrite using a best - efforts basis. b . Investment bankers earn fees based on the success of their placement when they underwrite using firm - commitment basis. c . With best - efforts underwriting, Investment bankers actos principais because they purchase securities from the issuer and sell them at a higher price, d. An investment banker is acting as principais when a firm - commitment offering of securities . e . Answers B and C only .