Exam 14: Secondary Markets

By taking the opposite side of a trade when there are no other orders, the dealer prevents the price from ________ from the price at which a recent trade was consummated.

A perfect market results when all buyers and sellers are ________, and the market price is determined where there is ________.

Which of the below statements is TRUE?

Effective August 24, 2000, the minimum spread was reduced to ________ ("decimals"), with trades on all stocks in decimals beginning on August 9, 2001.

In ________, investors can obtain transaction services as cheaply as possible, given the costs associated with furnishing those services.

Call auctions provide for fixed price auctions (that is, all the transaction or exchanges occur at the same "fixed" price) at specific times during the day and are appropriate for less liquid bonds such as corporate bonds and municipal bonds.

Trace the historical evolution of transaction costs charged by the brokerage industry.

Suppose that an investor expects that the price her security will decline. She can still benefit should the price actually decline if she can arrange to sell the security without owning it.

In the United States, secondary trading of common shares are traded on major national stock exchanges and regional stock exchanges, which are organized and somewhat regulated markets in specific geographical locations.

Many secondary markets are continuous, which means that prices are determined continuously throughout the trading day as buyers and sellers submit orders. Give an example of this.

Name and describe the two different major types of exchange systems.

________ are necessary to the smooth functioning of a secondary market.

A dealer acts as an auctioneer in all market structures, thereby providing order and fairness in the operations of the market.

In a continuous market, prices may vary ________.

Which of the following statements is FALSE?

In its "Big Bang" of 1986, the London Stock Exchange ________.

Investors need brokers to help ________.

The dominant OTC market for stocks in the United States is AMEX.

Among the overall advantages of electronic trading are ________.

Dealers also have to be compensated for bearing risk. A dealer's position may involve carrying inventory of a security (a long position) or selling a security that is not in inventory (a short position). There are three types of risks associated with maintaining a long or short position in a given security. Two of these include ________.