Question

A. Explain the importance of the steps in a pre & post issue management.
B. Describe 4 main functions performed by merchant banks in Zambia.
C. Describe the impact these risks: reputation and credit risks; have on the activities of Corporate and Merchant Bankers.
D. Explain two (2) distinctive roles that Corporate and Merchant banks (CMB) perform as a routine activity relating to pre and post issue management.
E. The investment environment is divided into equity and debt securities. These define portfolios for almost every investor. Discuss this statement.
F. Describe two types of debt securities used by merchant bankers to raise capital.
G. Would you confidently say Zambia has institutions that support merchant business? Explain your answer.

Answer 1

Answer:~

A. 1) Issue of shares.

2) Marketing,Coordination and underwriting of the issue.

3) Pricing of issues.

B. Functions of Merchant Banking:-

1. Advise on the timing of the public issue.
2. Advise on the size and price of the issue.
3. Acting as manager to the issue, and helping in accepting applications and allotment of securities.
4. Help in appointing underwriters and brokers to the issue.
5. Listing of shares on the stock exchange, etc.

C. It is the risk remaining after determining financing and systematic risk, and includes risks resulting from breakdowns in internal procedures, people and systems or external events. Operational risk can be summarized as human risk; it is the risk of business operations failing due to human error.

D. Merchant banks act as an intermediary/ middleman between business corporates and investors. In other words, merchant banking is financial intermediation between the business entities which require funds and the investors who possess ready capital and seeking an opportunity for investment so that they can make a return

E. Foreign portfolio investment is the purchase of securities of foreign countries, such as stocks and bonds, on an exchange. Foreign direct investment is building or purchasing businesses and their associated infrastructure in a foreign country.

F. Types of debt securities:-

• Bonds, notes and medium-term notes. Bonds and notes can be issued on a standalone, once off basis or on a repeat programme basis.
• Commercial paper (CP) CP are short-term debt securities.
• Interest-bearing securities.
• Zero coupon securities.
• High yield securities.
• Equity-linked securities.
• Warrants.
• Asset-backed securities

G. A merchant account is a type of business bank account that allows a business to accept and process electronic payment card transactions. Merchant accounts require a business to partner with a merchant acquiring bank who facilitates all communications in an electronic payment transaction.

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