fin market ch 12 (test 1)

This spread is a function of the following factors:

a. Order Costs + b. Inventory Costs + c. Competition - d. Volume - e. Risk +

although the international trading of stocks has grown over time, until recently it was limited by 3 Barriers :

transaction costs, information costs, and exchange rate risk.

Investors are also subject to a __________, which is the minimum proportion of equity that an investor must maintain in the account as a proportion of the market value of the stock.

****maintenance margin

Currently, the minimum is set at 50%. Hence, an investor with $50,000 in cash to invest, could invest up to $100,000, ($50,000 of his/her own plus $50,000 borrowed from the broker). To purchase stock on margin, investors must establish an account with their broker, called the _____Their initial deposit of cash is referred to as the ___2_____

***1) margin account. 2) initial margin.

, The New York Stock Exchange (NYSE) and Nasdaq have set the minimum maintenance margin at _______, but, some brokerage firms require a higher minimum

***25 percent

he firm may disclose the informations on its website, through a filling of a document _____ with the SEC and through a ______2______

(8-K form) 2) new release.

Bid-Ask Spread =_______________________

(ask price - bid price) / ask price

_____1_ - When investors place an order, they may consider purchasing the stock on margin; which would involve using cash as well as funds borrowed from their broker to make the purchase. ___2_____ sets the margin requirements, which represent the minimum proportion of funds that must be covered with cash.

****1)Margin Trading2) The Federal Reserve

under the Maintenance margin, The investor's _________ represents what the stock is worth to the investor after paying off the loan from the broker.

****equity position

you can do trade online, such as e trade and stuff like that, some brokerage services offers a zero-commision trades, however, the investors must maintain a certain amount of funds in their brokerage accounts, and the intrests rate paid in faily low. but they still can make money of them

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ex on specialists on page 309

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example of fllor brokers on page 309

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go on ch 12 powerpoint slides 9-11 are practice problems for math.. do em motha faukkaaaaa

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stock exchange may impose _________ on particular stocks they believe marketr participants need more time to receive and absorb material information that could affect the value of the stock.

...

. Using a Stop-Buy Order to Offset Short Selling (See computational example at the bottom of page 307 of Madura)

.....

___1___- Involves selling short without actually borrowing the shares needed to sell short. This is ___2_____. Market participants have claimed that the practice is, however, widespread. The SEC has recently taken steps to curb the practice of ____1_____.

1) "Naked" Short Selling 2) illegal

when collars are imposed, program trading that reflects a sell order is allowed only when the last movement in the stocks price was up ___1______. program trading that reflects a buy order is allowed only when the last movement in the stocks price was down____2____

1) (an "uptick") 2) ( a "downtick").

New SEC Rule on Short selling (Feb. 24 2010) - If a stock drops __1____ in a day from the previous day close, short selling is only permitted if the price of the security is above ____2____. Once triggered, the alternative _______3____ would apply to short sale orders in that stock for the remainder of the day as well as the following day.

1) 10% 2) the national best bid 3) uptick rule

___1______ - Trading on Margin can enhance the potential return from investing in stock, but may also magnify the potential losses as well. To calculate the return on investment when trading on margin, use the following formula:___2_____(See computational examples on pages 305-306 of Madura)

1) Impact on Returns 2) R = (SP - INV - LOAN + D)/INV

the transaction cost due to the spread is seprate from the ___1___ charged by the_____2___

1) commission 2) broker.

If the market price of the stock _____1___by the time the short-sellers purchase it in the market (to return to the investor from whom they borrowed ) the short-sellers earn the difference between_____2_______. Short-sellers must make payments to the investor from whom the stock was borrowed to cover the dividend payments that the investor would have received if the stock had not been borrowed. The short-seller's profit is the difference between______3-____. The risk of a ___4_____ is that the price of the stock may increase over time, forcing the short-seller to pay a higher price for the stock than the price at which it was initially sold. (Refer to the computational example at the top of page 307 of Madura)

1) declines 2) what they initially sold the stock for versus what they paid to obtain the stock. 3) the original selling price and the price paid for the stock, after subtracting any dividend payments made 4) short sale

SEC regulations require the following:

1) firms must publily disclose all information about themselves that could affect the value of their securities. 2) employees of firms may take positions in their own firms securities only durring periods when they do not know of inside information that will affect the value of the firm once the information becomes public. 3) participants in security markets who facilitate trades must work in a fair and orderly manner.

the use of direct access brokers and ECNs allows computers to ___2____ and sellers without relying on the ___2____or ____2___

1) match buyers 2) floor brokers or traders on stock exchanges.

the ____________1____ and the ______2________ gave securities and exchange commission authority to monitor the exchange and required listed companies to file a registration statement and financial reports with the ____3_____and the exchanges.

1) sec of 1933 2) sec of 1934 3) sec

after calculating the short interest level. For many stocks, this measure is between .5% and 2% A relatively high percentage (such as 3%) suggests a large amount of _______ in the market, which implies that a relatively large number of investors expect the stock's price to decline

1) short positions 2) decline

in a short interest ratios, The higher the ratio, the higher the level of_____1____.A short interest ratio of 2.0 for a particular stock indicates that the number of shares currently sold short is_____2____ , on average .A short interest ratio of 20 or more reflects an unusually high level of short sales, indicating that many investors believe that the stock price is currently _______3))))

1) short sales 2) two times the number of shares traded per day 3) overvalued.

specialist are required to "make a market" in the stocks that they are assigned. this role is commonly misunderstood. _______implies that the specialist stand by ready to buy or sell the stocks that they are assigned if no other investors are willing to participate.

1) specialist 2) making a market

______1__ is another type of limit order. the investor specifies a purchase price that is above the current market price. when the stock price rises to a specified level, the ____1_____ become a market order. if the stock price does not reach specidied macimum, the _____1___ will not be ___2___

1) stop-buy order 2)executed

______1___ allow program trading on days when it will exert price pressure in the __2_____ of the last price movement so that it may have a stabilizing effect on the market.

1) the collars 2) opposite direction

the investor communicates the offer to the broker by specifying 1)__________ 2) ___________ 3)______________4)_______________

1) the name of the stock 2) wheather to buy or sell the stock 3) the # of shares bought or sold, 4) wheather the order is a market or a limit order

for each stock that is traded in the nasdaq market, there are _____ market makers on average

12

there are _______ on the NYSE, and each one is typcally assigned____ stocks

443 specialists 2) 5-8

to calculate short interest ratio =

= (no. of shares currently sold short)/(average daily trading volume)

______ are situated on the floor of a stock exchange

floor brokers

the sec has several important divisions that attempt to ensure a fair and orderly stock market. the ___________________ reviews the registration statement filed when a firm goes public, corporate filings for annual and quarterly reports, and proxy statements that involve voting got board members or other corporate issues.

Division of corporate finance

the _____________ assesses possible violations of the SEC's regulations and can take action against individuals or firms.

Division of enforcement

these are types of ___________e.g. SPY (S&P 500), DIA(Dow-Jones Industrials), QQQQ(NASDAQ 100), XLF(Financials select), IYR(Real Estate ishares), UNG(US Natural Gas Fund) EWZ(Brazil ishares),FXI FTSE/Xinhua China ishares),USO(US Oil Fund),GLD(SPDR GOLD Trust), SLV (Silver Trust ishares).

ETF (Exchange traded funds)

______1______ are automated systems for disclosing and sometimes executing trades. they were adapted to facilitate thr execution of orders and normally service ____2____ rather than ____3______ investors

Electronic Communication Networks (ECNs 2) )institutional 3) individual

_________ - If the investor's equity position falls below the maintenance _______from the brokerage firm and will have to ____2___ cash to the account in order to boost the equity up to at least the required level. (See margin call computational example at the bottom of page 305 of Madura)

Margin Calls 2) deposit

in october 2000, the SEC issued _________- which requires firms to disclose relevant information broadly to investors at the same time. one of the most important results from ______________ is that a firm may no longer provide analysts with information that they could use before the market was aware of the information.

Regulation fair Disclosure (FD)

_______ - In a short sale, investors place an order to sell a stock that they do not own. They sell a stock short (or "short the stock") when they anticipate that its price will __2___. When they sell short, they are essentially borrowing the stock from ___3_______ and will ultimately have to provide that stock back to the investor from whom they borrowed it. The short-sellers borrow the stock through a ___4___which facilitates the process. The investors who own the stock are not affected when their shares are borrowed, and are not even aware that their shares were borrowed.

Short Selling 2) decline 3) another investor 4) brokerage firm,

short interest level is calculated as follows:

Short interest level = (no. of shares currently sold short) / ( the no. of outstanding shares that are available for trading) .

_____________ - A rule (10a-1) established in the Securities and Exchange Act of 1934. The rule requires that every short sale transaction be entered at__________2__________ The intention of the rule was to prevent short sellers from adding to the downward momentum of an asset whose price was already experiencing sharp declines.

Uptick (or "plus tick") Rule 2) a price higher than the price of the previoustrade.

The _______ was eliminated by the SEC on July 6, 2007. The SEC has, currently instituted a new Rule.

Uptick Rule

To calculate the return on investment when trading on margin, use the following formula we use R = (SP - INV - LOAN + D)/INV ...... what does the symbols mean?

Where: SP = selling price, INV = initial investment by investor, not including borrowed funds LOAN = loan payments on borrowed funds, including both principal and interest D = dividend payments

the SEC requires that any quote provided by a market maker, be made available to ___________.this eliminated the practice of providing more favorable quotes exclusively to proprietary clients. also resulted in lower spreads in nasdaq.

all market participants

to place an order to buy or sell a specific stock, an investor contacts a

brokerage firm

___________ serve as financial intermediaries between buyers and sellers of stock in the secondary market.

brokerage firms

stock exchange can impose _________, which are restrictions on trading when stock prices or a stock index reaches a specific threshold level. in general , __________ are intended to temporarily stop trading of stocks in response to a very large decline in stock prices within a single day.

circut breakers

since there is some concern that program trading can cause abrupt stock price movements and therefore cause more market volatility, the NYSE has implemented ______which restrict program trading when the DOW Jones industrial average changed by 2% from the closing price the previous day.

collars aka "curbs"

transactions on the stock exchange and the nasdaq are facilitated by :

floor brokers, specialists and market-makers

the term program refers to the use of computers in what is known as the_______________at the NYSE, which allows traders to send orders to many trading posts at the exchange.

designated order turnaround (DOT) system

a _____________ is a trading platform on a computer website that allows investors to trade stocks without the use of a broker.

direct access broker

the advanatage of a ___1______ is that investors interested in trading a particular stock can monitor the supply of shares for sale at various prices and the demand for shares at various prices on various _____2____. thus, the market becomes more transparent because investors can visualize the overall supply and demand conditions at various possible prices.

direct access broker ECNs

_______ only execute the transactions desired by costumers

discount brokers

the _______ requires the orderly disclosure of securities trades by various organizations that facilitate the trading of securities.

division of market regulation

an example of a stop buy order on page 304

do it you lint licker

ECNs are appealing to investors because they may allow for more _________ of trades

efficient execution

some eurpean stock exchange use an extensive cross listing system, called______ so that investors in a given European country can easily purchase stocks of companies based in other European countries

eurolist

do it mother fu

example of a stop loss order on 304

if the stock price does not reach the specified minimum, the stop-loss order will not be ___________-

executed.

making a market does not mean that specialists must prevent a stock price from ______. a large amount of sell orders and a small amount of buy orders for a particular sotck will naturally result in a ______2_____ in the stock price. specialist may buy some shares to particually offset this imbalance between supply and demand, buy they are buying the shares at the discounted price that resulted from the _____3_____

falling 2) decline 3) imbalance

in 2002, the NYSE issued a regulation requiring its listed firms to have a majority of__________ (not the employess of the firm) on their respective boards of directors. this requirement was intended to redice directors potential conflicts of intrest so that they will concentrate on ensuring that the firms managment is focused on maximizing the stocks value for shareholders.

independent directors

the puropose of halt is to ensure that the market has complete ___________--before trading on the news.

information

the ___1____ the transaction amount, the ______ charged by many brokers

larger 2) lower the %

a limit is placed on the price at which a stock can be purchased or sold. this is called

limit order

to use a direct access broker, investor must meet certin requirements, such as ___________________________________________

maintain liquid securities valued more than $50,000

some brokers own marker-maker firms; for example, charleswab owns mayer & schqeitzer. in this case, investors who are told that they will be charged a very small commission may also incur a transaction fee through the _______

maket-maker

transactions in the Nasdaq market are facilitated by so called _____, who stand ready to buy specific atocks in response to customer orders made through a telecommunication network. they benifit from the ______2____ between the bid and the ask prices.

market makers 2) spread (diffrence)

a ___________ to buy or sell a stock means to execute the transaction at the best possible price

market order

they have imposed trading halts on stocks that are associated with _______________________________.

mergers, earnings, reports, lawsuits, and other news

when many unimformed investors take buy or sell positions that push a stock's price away from its fundamental value, the stock price is distorted as a result of the "noise" caused by the unmformed investors... these investors are called

noise traders

the spread is influenced by the following factors:

order costs + inventory costs - competition - volume + risk = spread.

a monthly fee is usally charged for access to trading platform; the fee is higher for_______that offer more information.

platforms

program trading can be combined with the trading of stock index futures to create _________. with this strategy, the investor uses futures or options contracts on a stock indeex.thus, a decline in the market would result in a gain on the futures or option positions, which can offset the reduced market value of the stock position.

portfolio insurance

specialists can set the spread to reflect their _____, if they wish to avoid investing in a stock they are assigned at a particular point in time, they can widen the spread so that their bid price is substantially ___2____ the ask price.

preferences 2) below

the sec is composed of 5 commissioners appointed by the __________ and confirmed by_______. each commissioner serves a 5 year term.or other corporate

president of the united states 2) each senate

market makers take position to capitalize on the discrepancy between _______ and their _____________

prevailing stock price and their own valuation on the stock

___________ is often cited as the reason for a decline or ride in the stock market

program trading

a common form of computerized trading is __________, which the NYSE defines as the simultaneous buying and selling of a portfolio of at least 15 different stocks that are in the S&P 500 index.

program trading.

the bid price is the price at which the specialist would ______ the stock; the ask price is the price at which the specialist would ____2_ the stock

purchase 2) sell

LOOK MAT EXAMPLE OF PAGE 303 FOR AN EXAMPLE OF A LIMIT ORDER

read it

________ were enacted to prevent unfair or unethical trading practices on the security exchanges.

security exchange act of 1934

_1__ which is expressed as a percentage of the float(the no. of outstanding shares that are available for trading)

short interest level:

______ can serve a broker function on stock exchange by matching up buy and sell . they gain from accommodating these orders because their ___2____ differ. in addition, they aslo take positions in specific stocks to which they are assigned.

specialists 2) bid and ask prices

when investors place an order, they are quoted an ask price, or the price that the broker is asking for. there is also a bid price, or the price at which the broker would purchase the stock. the _____is the difference between the ask price and the bid price and is commonly measured as a percentage of the ask price

spread

several ECNs serve in the _______

stock market

investors whho have established a short position commonly use to _______ to limit their lossess

stop-buy order

______ is another typw of limit order. the investor specifies a selling price that is bellow current market prioce of the stock. when the stock price drops to the specified level, the _______become a market order.

stop-loss order

SEC has the pwoer to obtain information from specific individuals by__________

subpoena.

program trading is commonly used to reduce the _________of a _____2____ to stock markets movements.

susceptibility 2) stock portfolio

The Short Interest Ratio is also measured for ___1____. A high short interest ratio for the market overall, indicates a ___2_____and ____3_____

the market overall 2) high level of short selling activity 3) pessimism on the part of investors

example of the specialist in page 310

w

in market making, many transactions occur _______a specialist's involvement.

without