Question 1

Assume you purchased 500 shares of XYZ common stock on margin at $40 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is ________.

Accepted Answer

A)  $20,000 
B)  $12,000 
C)  $8,000 
D)  $15,000

Question 2

You purchased XYZ stock at $50 per share. The stock is currently selling at $65. Your gains could be protected by placing a ________.

Accepted Answer

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

Question 3

The difference between the price at which a dealer is willing to buy and the price at which a dealer is willing to sell is called the ________.

Accepted Answer

A)  market spread 
B)  bid-ask spread 
C)  bid-ask gap 
D)  market variation

Question 4

The non-European country with the highest average first-day returns in 2014 was ________.

Accepted Answer

A)  Canada 
B)  United States 
C)  China 
D)  Jordan

Question 5

Explicit costs of a stock IPO tend to be around ________ of the funds raised.

Accepted Answer

A)  1% 
B)  7% 
C)  15% 
D)  25%

Question 6

The primary market where new security issues are offered to the public is a good example of ________.

Accepted Answer

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

Question 7

Regulation NMS:
I. Supports the goal of integrating financial markets
II. Requires the use of specialists to execute trades
III. Requires that exchanges honor quotes of other exchanges when they can be executed automatically

Accepted Answer

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

Question 8

You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65%, and the stock pays no dividend. Your rate of return would be ________ if you sell the stock at $32 per share. Ignore interest on margin.

Accepted Answer

A)  35% 
B)  39% 
C)  43% 
D)  28%

Question 9

In 2013, NYSE Euronext was acquired by ________.

Accepted Answer

A)  DOT 
B)  ICE 
C)  BATS 
D)  It was not acquired.

Question 10

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

Question 11

In ________ markets, participants post bid and ask prices at which they are willing to trade, but orders are not automatically executed by computer. ________ execute trades for people other than themselves, and in ________ markets a computer matches orders with an existing limit order book and executes the trades automatically.

Accepted Answer

A)  electronic; Dealers; brokers 
B)  dealer; Brokers; electronic 
C)  direct search; Brokers; electronic 
D)  brokered; Dealers; direct search

Question 12

As a result of flash crashes, the SEC is trying circuit breakers that will halt trading for 5 minutes if large stocks' prices change by more than ________ in a 5-minute period.

Accepted Answer

A)  10% 
B)  20% 
C)  30% 
D)  40%

Question 13

The margin requirement on a stock purchase is 25%. You fully use the margin allowed to purchase 100 shares of MSFT at $25. If the price drops to $22, what is your percentage loss?

Accepted Answer

A)  9% 
B)  15% 
C)  48% 
D)  57%

Question 14

The ________ system enables exchange members to send orders directly to a specialist over computer lines.

Accepted Answer

A)  FAX 
B)  Direct Plus 
C)  NASDAQ 
D)  SUPERDOT

Question 15

Maintenance requirements for margin accounts are set by ________.

Accepted Answer

A)  brokerage firms 
B)  the SEC 
C)  the Federal Reserve System's Board of Governors 
D)  the Supreme Court

Question 16

The largest nongovernmental regulator of securities firms in the United States is ________.

Accepted Answer

A)  the CFA Institute 
B)  the Public Company Accounting Oversight Board 
C)  the Financial Industry Regulatory Authority 
D)  the Board of Directors of NYSE Euronext

Question 17

The term "underwriting syndicate" describes ________.

Accepted Answer

A)  the issuing firm 
B)  the lead underwriter 
C)  the investment banks that participate in the underwriting 
D)  the private investors that purchase the shares

Question 18

The NYSE acquired the ECN ________, and NASDAQ recently acquired the ECN ________.

Accepted Answer

A)  Archipelago; Instinet 
B)  Instinet; Archipelago 
C)  Island; Instinet 
D)  LSE; Euronext

Question 19

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

Question 20

The commission structure on a stock purchase is $20 plus $.02 per share. If you purchase four round lots of a stock selling for $56, what is your commission?

Accepted Answer

A)  $20 
B)  $22 
C)  $26 
D)  $28

Exam 3: Securities Markets