Question 1

Which one of the following is not an example of a brokered market?

Accepted Answer

A)  Residential real estate market 
B)  Market for large block security transactions 
C)  Primary market for securities 
D)  NASDAQ 
A)  Residential real estate market 
B)  Market for large block security transactions 
C)  Primary market for securities 
D)  NASDAQ

Question 2

You find that the bid and ask prices for a stock are $10.25 and $10.30 respectively.If you purchase or sell the stock you must pay a flat commission of $25.If you buy 100 shares of the stock and immediately sell them,what is your total implied and actual transaction cost in dollars?

Accepted Answer

A)  $50 
B)  $25 
C)  $30 
D)  $55 
A)  $50 
B)  $25 
C)  $30 
D)  $55

Question 3

Specialists try to maintain a narrow bid-ask spread because _______.
I.If the spread is too large they will not participate in as many trades,losing commission income
II.The exchange requires specialists to maintain price continuity
III.Specialists are non-profit entities designed to facilitate market transactions rather than make a profit

Accepted Answer

A)  I only 
B)  I and II only 
C)  II and III only 
D)  I, II and III 
A)  I only 
B)  I and II only 
C)  II and III only 
D)  I, II and III

Question 4

According to Loughran and Ritter,initial public offerings tend to exhibit __________ performance initially,and __________ performance over the long term.

Accepted Answer

A)  bad; good 
B)  bad; bad 
C)  good; good 
D)  good; bad 
A)  bad; good 
B)  bad; bad 
C)  good; good 
D)  good; bad

Question 5

Specialists on the stock exchanges may do all of the following except _________.

Accepted Answer

A)  They make a market in shares of the firms for which they specialize 
B)  They keep the limit order book 
C)  Use their privileged information to make speculative investments on their own account 
D)  Use their privileged information to make investments on behalf of clients of brokerage firms with which they do business 
A)  They make a market in shares of the firms for which they specialize 
B)  They keep the limit order book 
C)  Use their privileged information to make speculative investments on their own account 
D)  Use their privileged information to make investments on behalf of clients of brokerage firms with which they do business

Question 6

__________ often accompany short sales,and are used to limit potential losses from the short position.

Accepted Answer

A)  Limit orders 
B)  Restricted orders 
C)  Limit-loss orders 
D)  Stop-buy orders 
A)  Limit orders 
B)  Restricted orders 
C)  Limit-loss orders 
D)  Stop-buy orders

Question 7

An investor buys $8,000 worth of a stock priced at $40 per share using 50% initial margin.The broker charges 6% on the margin loan and requires a 30% maintenance margin.In one year the investor gets a margin call.At the time of the margin call the stock's price must have been ____.

Accepted Answer

A)  $20.00 
B)  $29.77 
C)  $30.29 
D)  $32.45 
A)  $20.00 
B)  $29.77 
C)  $30.29 
D)  $32.45

Question 8

IBM is listed on the NYSE.If a share of IBM is sold via the NASDAQ exchange in which market is it thought to have traded?

Accepted Answer

A)  Primary market 
B)  Secondary market 
C)  Third market 
D)  Fourth market 
A)  Primary market 
B)  Secondary market 
C)  Third market 
D)  Fourth market

Question 9

The term "paying for order flow" refers to the practice of ________________.

Accepted Answer

A)  paying more than one broker to execute your order 
B)  dealers trading with their customers at an outdated price 
C)  paying a broker a rebate for directing the trade to a particular stock dealer rather than directing the order to the NYSE 
D)  allocating shares in an IPO to preferred customers who agree to buy more shares in the aftermarket 
A)  paying more than one broker to execute your order 
B)  dealers trading with their customers at an outdated price 
C)  paying a broker a rebate for directing the trade to a particular stock dealer rather than directing the order to the NYSE 
D)  allocating shares in an IPO to preferred customers who agree to buy more shares in the aftermarket

Question 10

In a __________ underwriting arrangement,the underwriter assumes the full risk that shares may not be sold to the public at the stipulated offering price.

Accepted Answer

A)  best efforts 
B)  firm commitment 
C)  private placement 
D)  none of the above 
A)  best efforts 
B)  firm commitment 
C)  private placement 
D)  none of the above

Question 11

The bulk of most initial public offerings (IPOs)of equity securities go to ___________.

Accepted Answer

A)  institutional investors 
B)  individual investors 
C)  the firm's current shareholders 
D)  day traders 
A)  institutional investors 
B)  individual investors 
C)  the firm's current shareholders 
D)  day traders

Question 12

The over-the-counter securities market is a good example of _________.

Accepted Answer

A)  an auction market 
B)  a brokered market 
C)  a dealer market 
D)  a direct search market 
A)  an auction market 
B)  a brokered market 
C)  a dealer market 
D)  a direct search market

Question 13

Underwriting is one of the services provided by _____.

Accepted Answer

A)  the SEC 
B)  investment bankers 
C)  publicly traded companies 
D)  FDIC 
A)  the SEC 
B)  investment bankers 
C)  publicly traded companies 
D)  FDIC

Question 14

Which one of the following is a false statement regarding NYSE specialists?

Accepted Answer

A)  On a stock exchange all buy or sell orders are executed at a specialist's post on the exchange 
B)  Specialists can not trade for their own accounts 
C)  Specialists earn income from commissions and spreads in stock prices 
D)  Specialists stand ready to trade at quoted bid and ask prices 
A)  On a stock exchange all buy or sell orders are executed at a specialist's post on the exchange 
B)  Specialists can not trade for their own accounts 
C)  Specialists earn income from commissions and spreads in stock prices 
D)  Specialists stand ready to trade at quoted bid and ask prices

Question 15

The market collapse of 1987 prompted ________________________.

Accepted Answer

A)  Blue Sky laws 
B)  circuit breakers to halt trading during market crises 
C)  the Securities Investor Protection Act 
D)  the National Securities Market Act 
A)  Blue Sky laws 
B)  circuit breakers to halt trading during market crises 
C)  the Securities Investor Protection Act 
D)  the National Securities Market Act

Question 16

An order to buy or sell a security at the current price is a ______________.

Accepted Answer

A)  limit order 
B)  market order 
C)  stop loss order 
D)  stop buy order 
A)  limit order 
B)  market order 
C)  stop loss order 
D)  stop buy order

Question 17

The inside quotes on a limit order book would be comprised of the ______.

Accepted Answer

A)  highest bid price and the lowest ask price 
B)  lowest bid price and the lowest ask price 
C)  lowest bid price and the highest ask price 
D)  highest bid price and the highest ask price 
A)  highest bid price and the lowest ask price 
B)  lowest bid price and the lowest ask price 
C)  lowest bid price and the highest ask price 
D)  highest bid price and the highest ask price

Question 18

Advantages of ECNs over traditional markets include all but which one of the following?

Accepted Answer

A)  Lower transactions costs 
B)  Anonymity of the participants 
C)  Small amount of time needed to execute and order 
D)  Ability to handle very large orders 
A)  Lower transactions costs 
B)  Anonymity of the participants 
C)  Small amount of time needed to execute and order 
D)  Ability to handle very large orders

Question 19

Transactions that do not involve the original issue of securities take place in _________.

Accepted Answer

A)  primary markets 
B)  secondary markets 
C)  over-the-counter markets 
D)  institutional markets 
A)  primary markets 
B)  secondary markets 
C)  over-the-counter markets 
D)  institutional markets

Question 20

Which one of the following types of markets requires the greatest level of trading activity to be cost effective?

Accepted Answer

A)  Broker market 
B)  Dealer market 
C)  Continuous auction market 
D)  Direct search market 
A)  Broker market 
B)  Dealer market 
C)  Continuous auction market 
D)  Direct search market

Exam 3: Securities Markets

Which one of the following is not an example of a brokered market?

You find that the bid and ask prices for a stock are $10.25 and $10.30 respectively.If you purchase or sell the stock you must pay a flat commission of $25.If you buy 100 shares of the stock and immediately sell them,what is your total implied and actual transaction cost in dollars?

According to Loughran and Ritter,initial public offerings tend to exhibit __________ performance initially,and __________ performance over the long term.

Specialists on the stock exchanges may do all of the following except _________.

__________ often accompany short sales,and are used to limit potential losses from the short position.

An investor buys $8,000 worth of a stock priced at $40 per share using 50% initial margin.The broker charges 6% on the margin loan and requires a 30% maintenance margin.In one year the investor gets a margin call.At the time of the margin call the stock's price must have been ____.

IBM is listed on the NYSE.If a share of IBM is sold via the NASDAQ exchange in which market is it thought to have traded?

The term "paying for order flow" refers to the practice of ________________.

In a __________ underwriting arrangement,the underwriter assumes the full risk that shares may not be sold to the public at the stipulated offering price.

The bulk of most initial public offerings (IPOs)of equity securities go to ___________.

The over-the-counter securities market is a good example of _________.

Underwriting is one of the services provided by _____.

Which one of the following is a false statement regarding NYSE specialists?

The market collapse of 1987 prompted ________________________.

An order to buy or sell a security at the current price is a ______________.

The inside quotes on a limit order book would be comprised of the ______.

Advantages of ECNs over traditional markets include all but which one of the following?

Transactions that do not involve the original issue of securities take place in _________.

Which one of the following types of markets requires the greatest level of trading activity to be cost effective?

Investments: Background and Issues

Asset Classes and Financial Instruments

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Taxes,inflation,and Investment Strategy

Investors and the Investment Process

Filters

According to Loughran and Ritter,initial public offerings tend to exhibit performance initially,and performance over the long term.