FIA Investment Banking & Capital Markets Flashcards

What is a 'syndicated loan' in the context of investment banking?

Answer: A loan arranged by a lead bank and funded by a group of lenders sharing the risk and returns

A syndicated loan is a large loan structured by a lead arranger (investment bank) and then distributed among multiple lenders who each fund a portion, spreading credit risk.

What does EBITDA stand for, and why is it important in investment banking valuations?

Answer: Earnings Before Interest, Taxes, Depreciation, and Amortization — used as a proxy for operating cash flow in company valuations

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) strips out financing and accounting decisions to show core operating profitability, making it a widely used valuation benchmark in M&A.

What is a 'mezzanine financing' structure in capital markets?

Answer: Hybrid financing that combines subordinated debt with equity features such as warrants or conversion rights

Mezzanine financing sits between senior debt and equity in the capital structure, typically consisting of subordinated debt with equity kickers like warrants, offering higher returns for higher risk.

In DCF (Discounted Cash Flow) analysis, what does the 'terminal value' represent?

Answer: The present value of all cash flows beyond the explicit forecast period, assuming the business continues indefinitely

Terminal value captures the present value of all future cash flows beyond the forecast horizon, typically estimated using a perpetuity growth model or exit multiple, and often represents the majority of a company's total DCF value.

What is the 'Chinese Wall' (information barrier) in an investment bank?

Answer: An internal policy separating investment banking divisions from trading and research to prevent misuse of material non-public information

A Chinese Wall (information barrier) is an internal policy that prevents the flow of material non-public information between an investment bank's advisory teams and its trading and research divisions to avoid conflicts of interest and insider trading.

Which of the following best describes a 'special purpose acquisition company' (SPAC)?

Answer: A shell company that raises capital through an IPO with the sole purpose of acquiring an existing private company

A SPAC is a blank-check shell company that raises money through an IPO with the stated purpose of merging with or acquiring a private company, providing an alternative path to public markets.