Question 1

Without a secondary market, issuers would be unable to ________, or they would have to pay a higher rate of return, as investors would ________ in compensation for expected illiquidity in the securities.

Accepted Answer

A)   sell new securities; increase the discount rate
B)   sell new securities; decrease the discount rate
C)   buy new securities; decrease the price
D)   sell new securities; increase the price A

Question 2

In the United States, secondary trading of common stock occurs ________.

Accepted Answer

A)   in a number of trading locations.
B)   in Dallas, Texas.
C)   in each major city.
D)   None of these A

Question 3

Pricing efficiency refers to a market where prices at all times fully reflect all available information that is relevant to the valuation of securities.

Accepted Answer

A) True 
 B)False  True

Question 4

Which of the following statements is FALSE?

Accepted Answer

A)   A real market might also differ from the perfect market because of the possibly frequent event of a temporary imbalance in the number of buy and sell orders that investors may place for any security at any one time.
B)   An unmatched or unbalanced flow of buy and sell orders causes a problem in that the security's price may change abruptly, even if there has been no shift in either supply or demand for the security.
C)   The fact of imbalances in buy and sell orders cannot explain the need for the dealer or market maker, who stands ready and willing to buy a financial asset for its own account (to add to an inventory of the financial asset)  or sell from its own account (to reduce the inventory of the financial asset) .
D)   An unmatched or unbalanced flow of buy and sell orders causes a problem in that buyers may have to pay higher than market-clearing prices (or sellers accept lower ones)  if they want to make their trade immediately.

Question 5

________, orders are grouped together for simultaneous execution at the same price.

Accepted Answer

A)   In a bull market
B)   In an efficient market
C)   In a call market
D)   In a bear market

Question 6

The ________ can be viewed as the price charged by dealers for supplying immediacy together with short-run price stability (continuity or smoothness) in the presence of short-term order imbalances.

Accepted Answer

A)   bid-ask fee
B)   bid-ask price
C)   bid-ask spread
D)   bid-ask imbalance

Question 7

A market is not perfect only because market agents are price takers but is also free of transactions costs and any impediment to the interaction of supply and demand for the commodity. Economists refer to these various costs and impediments as frictions. Frictions include ________.

Accepted Answer

A)   bid-ask spreads charged by dealers and order handling and clearance charges.
B)   taxes (but not on capital gains)  and government-imposed transfer fees.
C)   costs of acquiring information about the financial asset and restrictions on market takers.
D)   financial liability that a buyer or seller may take and taxes on capital gains.

Question 8

Commissions are all of the brokerage costs of transacting.

Accepted Answer

A) True 
 B)False

Question 9

Which of the below statements is TRUE?

Accepted Answer

A)   In the United States, secondary shares are traded on major national stock exchanges (the largest of which is the American Stock Exchange)  and regional stock exchanges.
B)   In the United States, significant trading in stock takes place on the so-called over-the-counter or OTC market, which involves specific geographical locations.
C)   In the United States, the dominant OTC market for stocks in the United States is the New York Stock Exchange.
D)   In the United States, some bonds are traded on exchanges, but most trading in bonds in the United States and throughout the world occurs in the OTC market.

Question 10

This practice of selling securities that are not owned at the time of sale is referred to as ________.

Accepted Answer

A)   buying short.
B)   selling short.
C)   selling long.
D)   buying and selling simultaneously.

Question 11

In the absence of an effective short-selling mechanism, security prices will tend to be biased toward the ________, causing a market to depart from the standards of a perfect price-setting situation.

Accepted Answer

A)   view of more pessimistic investors
B)   view of the market maker
C)   view of more optimistic investors
D)   view of the market taker

Question 12

Because the bond business has been ________ rather than ________ business, the capital of the market makers is critical.

Accepted Answer

A)   a financial; an accounting
B)   an accounting; a financial
C)   an agency; a principal
D)   a principal; an agency

Question 13

Primary markets help the issuer of securities to track their values and required returns.

Accepted Answer

A) True 
 B)False

Question 14

The same Wall Street firms that have been the major market makers in bonds have also been the ________ of electronic trading in bonds.

Accepted Answer

A)   cynics
B)   attackers
C)   supporters
D)   detractors

Question 15

In the United States, secondary trading of common stock occurs in a number of trading locations. Describe these locations.

Accepted Answer

The answer of In the United States, secondary trading of...

Question 16

The combination of the decreased risk and the increased profitability of bond market making has induced the major market markets to deemphasize this business in the allocation of capital.

Accepted Answer

A) True 
 B)False

Question 17

Which of the below statement is FALSE?

Accepted Answer

A)   The multi-customer system simply computerizes the traditional customer-dealer market making mechanism.
B)   Single-dealer systems are based on a customer dealing with a single, identified dealer over the computer.
C)   Dealer-to-customer systems can be a single-dealer system or multiple-dealer system.
D)   Multi-dealer systems provide some advancement over the single- dealer method since a customer can select from any of several identified dealers whose bids and offers are provided on a computer screen.

Question 18

In the secondary market, an issuer of securities (whether it is a corporation or a governmental unit) may obtain regular information about the value of the asset. Describe the nature of this information and value that a secondary market offers.

Accepted Answer

The answer of In the secondary market, an issuer of...

Question 19

Perfect market results when ________.

Accepted Answer

A)   the number of buyers and sellers is sufficiently small, and all participants are small enough relative to the market so that no individual market agent can influence the commodity's price.
B)   the number of buyers and sellers is sufficiently large, and all participants are small enough relative to the market so that all individual market agent can influence the commodity's price.
C)   the number of buyers and sellers is sufficiently large, and all participants are small enough relative to the market so that no individual market agent can influence the commodity's price.
D)   the number of buyers and sellers is sufficiently small, and all participants are small enough relative to the market so that all individual market agent can influence the commodity's price.

Question 20

Which of the below statements is FALSE?

Accepted Answer

A)   In a call market, a market maker holds an auction for a stock at certain times in the trading day (or possibly more than once in a day) .
B)   Many secondary markets are continuous, which means that prices are determined continuously throughout the trading day as buyers and sellers submit orders.
C)   In a call market, a market maker holds an auction for a stock at the same time each day.
D)   An auction in a call market may be oral or written.

Exam 14: Secondary Markets

Without a secondary market, issuers would be unable to , or they would have to pay a higher rate of return, as investors would in compensation for expected illiquidity in the securities.

In the United States, secondary trading of common stock occurs ________.

Pricing efficiency refers to a market where prices at all times fully reflect all available information that is relevant to the valuation of securities.

Which of the following statements is FALSE?

________, orders are grouped together for simultaneous execution at the same price.

The ________ can be viewed as the price charged by dealers for supplying immediacy together with short-run price stability (continuity or smoothness) in the presence of short-term order imbalances.

A market is not perfect only because market agents are price takers but is also free of transactions costs and any impediment to the interaction of supply and demand for the commodity. Economists refer to these various costs and impediments as frictions. Frictions include ________.

Commissions are all of the brokerage costs of transacting.

Which of the below statements is TRUE?

This practice of selling securities that are not owned at the time of sale is referred to as ________.

In the absence of an effective short-selling mechanism, security prices will tend to be biased toward the ________, causing a market to depart from the standards of a perfect price-setting situation.

Because the bond business has been rather than business, the capital of the market makers is critical.

Primary markets help the issuer of securities to track their values and required returns.

The same Wall Street firms that have been the major market makers in bonds have also been the ________ of electronic trading in bonds.

In the United States, secondary trading of common stock occurs in a number of trading locations. Describe these locations.

The combination of the decreased risk and the increased profitability of bond market making has induced the major market markets to deemphasize this business in the allocation of capital.

Which of the below statement is FALSE?

In the secondary market, an issuer of securities (whether it is a corporation or a governmental unit) may obtain regular information about the value of the asset. Describe the nature of this information and value that a secondary market offers.

Perfect market results when ________.

Which of the below statements is FALSE?