Financial Markets and Instruments

Find the appropriate word from the given options and fill blank (v).

Directions: The following passage has some blanks, each of which has been numbered. These numbers are printed below the passage and against each, five words are suggested, one of which fits the blank appropriately. 

The traditional method of managing credit risk is ____(i)____ diversification. Although ____(ii)____ credit risk through diversification is effective, institutions are often constrained by _____(iii)____ of diversification ____(iv)_____ on account of limited area of _____(v)_____. During the last few years, managing credit risk through selling assets by way of securitisation has _____(vi)_____ in popularity. The market for securitised assets has grown _____(vii)_____ in the last few years and is expected to grow further in the _____(viii)_____ years. This mode of credit risk mitigation is most _____(ix)_____ to loans with standardised payment schedules and similar credit risk characteristics such as housing loans, auto loans, credit card receivables, etc. Further, shedding loans through securitisation might _____(x)____ client relationship. In this context, credit derivatives provide a new technique for managing credit risk.

Find the appropriate word from the given options and fill blank (v).

Directions: The following passage has some blanks, each of which has been numbered. These numbers are printed below the passage and against each, five words are suggested, one of which fits the blank appropriately. 

The traditional method of managing credit risk is ____(i)____ diversification. Although ____(ii)____ credit risk through diversification is effective, institutions are often constrained by _____(iii)____ of diversification ____(iv)_____ on account of limited area of _____(v)_____. During the last few years, managing credit risk through selling assets by way of securitisation has _____(vi)_____ in popularity. The market for securitised assets has grown _____(vii)_____ in the last few years and is expected to grow further in the _____(viii)_____ years. This mode of credit risk mitigation is most _____(ix)_____ to loans with standardised payment schedules and similar credit risk characteristics such as housing loans, auto loans, credit card receivables, etc. Further, shedding loans through securitisation might _____(x)____ client relationship. In this context, credit derivatives provide a new technique for managing credit risk.

Find the appropriate word from the given options and fill blank (iv).

Directions: The following passage has some blanks, each of which has been numbered. These numbers are printed below the passage and against each, five words are suggested, one of which fits the blank appropriately. 

The traditional method of managing credit risk is ____(i)____ diversification. Although ____(ii)____ credit risk through diversification is effective, institutions are often constrained by _____(iii)____ of diversification ____(iv)_____ on account of limited area of _____(v)_____. During the last few years, managing credit risk through selling assets by way of securitisation has _____(vi)_____ in popularity. The market for securitised assets has grown _____(vii)_____ in the last few years and is expected to grow further in the _____(viii)_____ years. This mode of credit risk mitigation is most _____(ix)_____ to loans with standardised payment schedules and similar credit risk characteristics such as housing loans, auto loans, credit card receivables, etc. Further, shedding loans through securitisation might _____(x)____ client relationship. In this context, credit derivatives provide a new technique for managing credit risk.

Find the appropriate word from the given options and fill blank (iv).

Directions: The following passage has some blanks, each of which has been numbered. These numbers are printed below the passage and against each, five words are suggested, one of which fits the blank appropriately. 

The traditional method of managing credit risk is ____(i)____ diversification. Although ____(ii)____ credit risk through diversification is effective, institutions are often constrained by _____(iii)____ of diversification ____(iv)_____ on account of limited area of _____(v)_____. During the last few years, managing credit risk through selling assets by way of securitisation has _____(vi)_____ in popularity. The market for securitised assets has grown _____(vii)_____ in the last few years and is expected to grow further in the _____(viii)_____ years. This mode of credit risk mitigation is most _____(ix)_____ to loans with standardised payment schedules and similar credit risk characteristics such as housing loans, auto loans, credit card receivables, etc. Further, shedding loans through securitisation might _____(x)____ client relationship. In this context, credit derivatives provide a new technique for managing credit risk.

Find the appropriate word from the given options and fill blank (i).

Directions: The following passage has some blanks, each of which has been numbered. These numbers are printed below the passage and against each, five words are suggested, one of which fits the blank appropriately. 

The traditional method of managing credit risk is ____(i)____ diversification. Although ____(ii)____ credit risk through diversification is effective, institutions are often constrained by _____(iii)____ of diversification ____(iv)_____ on account of limited area of _____(v)_____. During the last few years, managing credit risk through selling assets by way of securitisation has _____(vi)_____ in popularity. The market for securitised assets has grown _____(vii)_____ in the last few years and is expected to grow further in the _____(viii)_____ years. This mode of credit risk mitigation is most _____(ix)_____ to loans with standardised payment schedules and similar credit risk characteristics such as housing loans, auto loans, credit card receivables, etc. Further, shedding loans through securitisation might _____(x)____ client relationship. In this context, credit derivatives provide a new technique for managing credit risk.

Find the appropriate word from the given options and fill blank (i).

Directions: The following passage has some blanks, each of which has been numbered. These numbers are printed below the passage and against each, five words are suggested, one of which fits the blank appropriately. 

The traditional method of managing credit risk is ____(i)____ diversification. Although ____(ii)____ credit risk through diversification is effective, institutions are often constrained by _____(iii)____ of diversification ____(iv)_____ on account of limited area of _____(v)_____. During the last few years, managing credit risk through selling assets by way of securitisation has _____(vi)_____ in popularity. The market for securitised assets has grown _____(vii)_____ in the last few years and is expected to grow further in the _____(viii)_____ years. This mode of credit risk mitigation is most _____(ix)_____ to loans with standardised payment schedules and similar credit risk characteristics such as housing loans, auto loans, credit card receivables, etc. Further, shedding loans through securitisation might _____(x)____ client relationship. In this context, credit derivatives provide a new technique for managing credit risk.

Find the appropriate word from the given options and fill blank (x).

Directions: The following passage has some blanks, each of which has been numbered. These numbers are printed below the passage and against each, five words are suggested, one of which fits the blank appropriately. 

The traditional method of managing credit risk is ____(i)____ diversification. Although ____(ii)____ credit risk through diversification is effective, institutions are often constrained by _____(iii)____ of diversification ____(iv)_____ on account of limited area of _____(v)_____. During the last few years, managing credit risk through selling assets by way of securitisation has _____(vi)_____ in popularity. The market for securitised assets has grown _____(vii)_____ in the last few years and is expected to grow further in the _____(viii)_____ years. This mode of credit risk mitigation is most _____(ix)_____ to loans with standardised payment schedules and similar credit risk characteristics such as housing loans, auto loans, credit card receivables, etc. Further, shedding loans through securitisation might _____(x)____ client relationship. In this context, credit derivatives provide a new technique for managing credit risk.

Find the appropriate word from the given options and fill blank (x).

Directions: The following passage has some blanks, each of which has been numbered. These numbers are printed below the passage and against each, five words are suggested, one of which fits the blank appropriately. 

The traditional method of managing credit risk is ____(i)____ diversification. Although ____(ii)____ credit risk through diversification is effective, institutions are often constrained by _____(iii)____ of diversification ____(iv)_____ on account of limited area of _____(v)_____. During the last few years, managing credit risk through selling assets by way of securitisation has _____(vi)_____ in popularity. The market for securitised assets has grown _____(vii)_____ in the last few years and is expected to grow further in the _____(viii)_____ years. This mode of credit risk mitigation is most _____(ix)_____ to loans with standardised payment schedules and similar credit risk characteristics such as housing loans, auto loans, credit card receivables, etc. Further, shedding loans through securitisation might _____(x)____ client relationship. In this context, credit derivatives provide a new technique for managing credit risk.

Find the appropriate word from the given options and fill blank (ii).

Directions: The following passage has some blanks, each of which has been numbered. These numbers are printed below the passage and against each, five words are suggested, one of which fits the blank appropriately. 

The traditional method of managing credit risk is ____(i)____ diversification. Although ____(ii)____ credit risk through diversification is effective, institutions are often constrained by _____(iii)____ of diversification ____(iv)_____ on account of limited area of _____(v)_____. During the last few years, managing credit risk through selling assets by way of securitisation has _____(vi)_____ in popularity. The market for securitised assets has grown _____(vii)_____ in the last few years and is expected to grow further in the _____(viii)_____ years. This mode of credit risk mitigation is most _____(ix)_____ to loans with standardised payment schedules and similar credit risk characteristics such as housing loans, auto loans, credit card receivables, etc. Further, shedding loans through securitisation might _____(x)____ client relationship. In this context, credit derivatives provide a new technique for managing credit risk.

Find the appropriate word from the given options and fill blank (ii).

Directions: The following passage has some blanks, each of which has been numbered. These numbers are printed below the passage and against each, five words are suggested, one of which fits the blank appropriately. 

The traditional method of managing credit risk is ____(i)____ diversification. Although ____(ii)____ credit risk through diversification is effective, institutions are often constrained by _____(iii)____ of diversification ____(iv)_____ on account of limited area of _____(v)_____. During the last few years, managing credit risk through selling assets by way of securitisation has _____(vi)_____ in popularity. The market for securitised assets has grown _____(vii)_____ in the last few years and is expected to grow further in the _____(viii)_____ years. This mode of credit risk mitigation is most _____(ix)_____ to loans with standardised payment schedules and similar credit risk characteristics such as housing loans, auto loans, credit card receivables, etc. Further, shedding loans through securitisation might _____(x)____ client relationship. In this context, credit derivatives provide a new technique for managing credit risk.

Find the appropriate word from the given options and fill blank (viii).

Directions: The following passage has some blanks, each of which has been numbered. These numbers are printed below the passage and against each, five words are suggested, one of which fits the blank appropriately. 

The traditional method of managing credit risk is ____(i)____ diversification. Although ____(ii)____ credit risk through diversification is effective, institutions are often constrained by _____(iii)____ of diversification ____(iv)_____ on account of limited area of _____(v)_____. During the last few years, managing credit risk through selling assets by way of securitisation has _____(vi)_____ in popularity. The market for securitised assets has grown _____(vii)_____ in the last few years and is expected to grow further in the _____(viii)_____ years. This mode of credit risk mitigation is most _____(ix)_____ to loans with standardised payment schedules and similar credit risk characteristics such as housing loans, auto loans, credit card receivables, etc. Further, shedding loans through securitisation might _____(x)____ client relationship. In this context, credit derivatives provide a new technique for managing credit risk.

Find the appropriate word from the given options and fill blank (viii).

Directions: The following passage has some blanks, each of which has been numbered. These numbers are printed below the passage and against each, five words are suggested, one of which fits the blank appropriately. 

The traditional method of managing credit risk is ____(i)____ diversification. Although ____(ii)____ credit risk through diversification is effective, institutions are often constrained by _____(iii)____ of diversification ____(iv)_____ on account of limited area of _____(v)_____. During the last few years, managing credit risk through selling assets by way of securitisation has _____(vi)_____ in popularity. The market for securitised assets has grown _____(vii)_____ in the last few years and is expected to grow further in the _____(viii)_____ years. This mode of credit risk mitigation is most _____(ix)_____ to loans with standardised payment schedules and similar credit risk characteristics such as housing loans, auto loans, credit card receivables, etc. Further, shedding loans through securitisation might _____(x)____ client relationship. In this context, credit derivatives provide a new technique for managing credit risk.

Find the appropriate word from the given options and fill blank (vi).

Directions: The following passage has some blanks, each of which has been numbered. These numbers are printed below the passage and against each, five words are suggested, one of which fits the blank appropriately. 

The traditional method of managing credit risk is ____(i)____ diversification. Although ____(ii)____ credit risk through diversification is effective, institutions are often constrained by _____(iii)____ of diversification ____(iv)_____ on account of limited area of _____(v)_____. During the last few years, managing credit risk through selling assets by way of securitisation has _____(vi)_____ in popularity. The market for securitised assets has grown _____(vii)_____ in the last few years and is expected to grow further in the _____(viii)_____ years. This mode of credit risk mitigation is most _____(ix)_____ to loans with standardised payment schedules and similar credit risk characteristics such as housing loans, auto loans, credit card receivables, etc. Further, shedding loans through securitisation might _____(x)____ client relationship. In this context, credit derivatives provide a new technique for managing credit risk.

Which of the following options cannot be inferred from the passage about managements of target firms prior to the current takeover frenzy?

1. They used more imaginative tactics to resist takeovers.
2. They were more concerned about shareholders' interests.
3. They rarely took strong action to resist takeover attempts.

   Directions: Answer the question based on the following passage.

   The 1980s have come to be regarded as the decade of corporate consolidation in the United States, with the number of mergers and their dollar value both setting records. Many public forums have questioned, on both social and economic grounds, the merits of this takeover frenzy. Even more controversial than the mergers themselves, however, is the reaction of the management of target firms. No longer is management content to be passive or to put up minimal resistance in the face of an unwelcome takeover attempt. Indeed, the responses of target managements have become as imaginative as the methods used by the would–be acquirers. These so–called antitakeover tactics have received nearly universal condemnation from government regulatory bodies, the financial press, and some academic publications. Why is there so much criticism when management resists takeovers? At the most general level, such criticism is based on studies that find a negative return to shareholders when a negotiated (friendly) merger is unsuccessful. These studies examine the cumulative return from the period just prior to the first public announcement of the proposed merger through the announcement of cancellation. Results range from a total return of –9.02 per cent to + 3.68 per cent, with an average of –2.88 percent. In unsuccessful mergers, therefore, stockholders in target firms lose on average nearly 3 per cent of the shares' value.

   But looking at the returns only through the termination date can be misleading. Other studies examining the period from six months prior to an offer to six months after the offer have found that the total return averages nearly +36 per cent, even though the offer was unsuccessful. Given the typical stock market reaction to unsuccessful negotiated mergers, this is a curious finding. The explanation for this seeming anomaly emerges when firms are divided into two groups: those eventually acquired by some other bidder, and those not acquired. Firms that were not acquired eventually lost the entire 36 per cent return. But firms subsequently acquired, earned an additional 20 per cent return above the initial 36 per cent, earning shareholders a total return of 56 per cent. Those earnings compare favorably to the overall average return of 30 percent earned by shareholders & of all companies successfully acquired. These results suggest that some form of resistance by management may be desirable. Playing hard to get may influence the initial suitor to increase the bid, or it may permit time for competing bids to be submitted. It is possible, however, to have too much of a good thing. When management actions are designed solely to eliminate a takeover by a specific bidder, then shareholders may be harmed. Nevertheless, antitakeover tactics do not deserve the blanket condemnation they receive in the press.

    

Which of the following options, if true, would most seriously weaken the author's conclusion about the benefits of management resistance to takeovers?

1. A third category of mergers, comprising firms that underwent several unsuccessful bids before being acquired, shows a rate of return to shareholders somewhere between the rates for the other two categories.
2. When acquisitions are studied over a two-year period, companies that resisted takeover attempts show the same return to shareholders as companies that did not resist.
3. The 56 per cent return to shareholders earned when companies are acquired after an unsuccessful takeover bid, is an average that includes companies whose stock declined in value as well as companies whose stock gained in value.
4. Of the companies whose managements resisted acquisition attempts, about fifty per cent experienced an increase in stock prices and fifty per cent suffered a decrease in stock prices.

   Directions: Answer the question based on the following passage.

   The 1980s have come to be regarded as the decade of corporate consolidation in the United States, with the number of mergers and their dollar value both setting records. Many public forums have questioned, on both social and economic grounds, the merits of this takeover frenzy. Even more controversial than the mergers themselves, however, is the reaction of the management of target firms. No longer is management content to be passive or to put up minimal resistance in the face of an unwelcome takeover attempt. Indeed, the responses of target managements have become as imaginative as the methods used by the would–be acquirers. These so–called antitakeover tactics have received nearly universal condemnation from government regulatory bodies, the financial press, and some academic publications. Why is there so much criticism when management resists takeovers? At the most general level, such criticism is based on studies that find a negative return to shareholders when a negotiated (friendly) merger is unsuccessful. These studies examine the cumulative return from the period just prior to the first public announcement of the proposed merger through the announcement of cancellation. Results range from a total return of –9.02 per cent to + 3.68 per cent, with an average of –2.88 percent. In unsuccessful mergers, therefore, stockholders in target firms lose on average nearly 3 per cent of the shares' value.

   But looking at the returns only through the termination date can be misleading. Other studies examining the period from six months prior to an offer to six months after the offer have found that the total return averages nearly +36 per cent, even though the offer was unsuccessful. Given the typical stock market reaction to unsuccessful negotiated mergers, this is a curious finding. The explanation for this seeming anomaly emerges when firms are divided into two groups: those eventually acquired by some other bidder, and those not acquired. Firms that were not acquired eventually lost the entire 36 per cent return. But firms subsequently acquired, earned an additional 20 per cent return above the initial 36 per cent, earning shareholders a total return of 56 per cent. Those earnings compare favorably to the overall average return of 30 percent earned by shareholders & of all companies successfully acquired. These results suggest that some form of resistance by management may be desirable. Playing hard to get may influence the initial suitor to increase the bid, or it may permit time for competing bids to be submitted. It is possible, however, to have too much of a good thing. When management actions are designed solely to eliminate a takeover by a specific bidder, then shareholders may be harmed. Nevertheless, antitakeover tactics do not deserve the blanket condemnation they receive in the press.