Chapter 2: Securities Markets and Transactions
What is the Minimum Initial Margin (Equity) Required for U.S. government bills, notes, and bonds?
10% of Principal
What is the Minimum Initial Margin (Equity) Required for Futures?
2-10% of the value of the contract
What is the Minimum Initial Margin (Equity) Required for U.S. government agencies?
24% of Principal
What is the Minimum Initial Margin (Equity) Required for Corporate Bonds
30%
What is the Minimum Initial Margin (Equity) Required for listed common and preferred stock, Nasdaq OMX stocks, and Convertible bonds?
50%
1. Value of securities $6,500 2. Debit Balance $1,200 What is the Margin %?
81.5
1. Total Current Income Received $100 2. Total Interest Paid on Margin Loan $125 3. Market Value of Securities At Sale $7,500 4. Market Value of Securiteis at Purchase $5,000 5. Amount of Equity At Purchase 6. $2,500 What is the Return on Invested Capital in %?
99
Dollar denominated receipts for stocks of foreign companies held in vaults of banks are called what?
American Depositary Receipts (ADRs)
The lowest price at which a Market Maker is willing to sell a given security is called what?
Ask Price
The following are examples of what? 1. Long Purchase 2. Margin Trading 3. Short Selling
Basic Types of Securities Transactions
The following describes which market condition? 1. Unfavorable Markets 2. Falling Prices 3. Investor/ Consumer pessimism 4. Economic Slowdown 5. Government Restraint
Bear Market
The highest price offered by Market Maker to purchase a given security is called what?
Bid Price
Which Securities market regulation laws are imposed by individual states to regulate sellers of securities with the aim to prevent investors from being sold nothing but "[answer]"?
Blue Sky Laws
On $4,445 purchase with 50% MARGIN REQUIREMENT, investor puts up $2,222.50 and the _________will lend the remaining $2,222.50
Broker
60% of the total dollar volume of all shares in the U.S. stock market trade where?
Broker Market
In which market are trades executed when a buyer and a seller are brought together by a [sort of an answer] and the trade takes place directly between the buyer and seller?
Broker Market
The NYSE and NYSE Amex (American Stock Exchange) are examples of which market?
Broker Market
Which market consists of national and regional securities exchanges?
Broker Market
The following describes which market condition? 1. Favorable Markets 2. Rising Prices 3. Investor/ Consumer Optimism 4. Economic growth and Recovery 5. Government Stimulus
Bull Market
The market where long-term securities such as stocks and bonds are bought and sold is called what?
Capital Market
The following describes which risks? 1. Value of foreign currency fluctuates compared to U.S. dollar 2. Value of foreign investments can go up and down with exchange rate fluctuations.
Currency Exchange Rate Risk
40% of the total dollar volume of all shares in the U.S. stock market are traded in which market?
Dealer Market
In which market do sellers sell to a market maker at a stated price and then the market maker offers the securities to a buyer?
Dealer Market
In which markets are trades executed with a [Sort of an Answer] (hint: Market Maker) in the middle?
Dealer Market
The following describes which market? 1. No centralized trading floor 2. Comprised of Market Makers 3. Linked by telecommunications network 4. Both IPOs and secondary distributions are sold on OTC
Dealer Market
Which market consists of both the Nasdaq OMX market and the OTC market?
Dealer Market
The following are the __________ways one can invest in Foreign Securities: 1. Purchase securities on foreign stock exchanges 2. Buy securities of foreign companies that trade on U.S. Stock exchanges 3. Buy American Depositary Receipts (ADRs)
Direct
Use of International Securities Improves what?
Diversification
What is the inclusion of a number of different investment vehicles in a portfolio to increase returns or reduce risks called?
Diversification
1. NYSE: 16:15 to 17:00 Eastern Time 2. Nasdaq: 16:00 to 18:30 Eastern Time 3. Regional Exchanges also have after-hours trading sessions 4. Orders only filled if matched with identical opposing orders
Extended-Hours Electronic-Trading Sessions
The following describes which market? 1. Large institutional investors deal DIRECTLY with EACH OTHER to bypass Market Makers 2. Electronic Communications Networks (ECNs) allow direct trading 3. ECNs most effective for high-volume, actively traded securities
Fourth Market
The following describes which Exchange market? 1. Allows trading of financial futures 2. Best-Known: Chicago Board of trade (CBT)
Futures Exchange
The following describes which risks? 1. Unstable foreign governments 2. Different laws in trade, labor or taxation 3. Different economic and political conditions 4. Less stringent regulation of foreign securities markets
Government Policies Risks
A(n)___________ way to invest in Foreign Securities is to purchase shares of U.S. based multinational corporations with substantial foreign operations
Indirect
The first public sale of a company's stock; requires SEC approval
Initial Public Offering (IPO)
Which Securities market regulation forbids the use of nonpublic information about a company to make profitable securities transactions?
Insider Trading
Which Securities market regulation prohibited insider trading on nonpublic information?
Insider Trading and Fraud Act of 1988
The following are the Risks of ___________. 1. Usual Investment Risks Still Apply 2. Government Policies Risks 3. Currency Exchange Rate Risks
International Investing
Which Securities market regulation required investment advisers to make full disclosure about their backgrounds and their investments, as well as register with the SEC?
Investment Advisors Act of 1940
The following describes a(n)______'s roles: 1. Underwriting the Issue 2. underwriting Syndicate 3. Selling Group 4. Tombstone
Investment Banker
What is typically in the form of a discount on the sale price of the securities?
Investment Banker Compensation
Which Securities market regulation created and regulated mutual funds?
Investment Company Act of 1940
The following describes which basic type of securities transaction? 1. Investors buys and holds securities 2. "Buy low and sell high" 3. Make money when prices go up
Long Purchase
Which Securities market regulation allowed self-regulation of securities industry through trade associations such as the National Association of Securities Dealers (NASD)?
Maloney Act of 1938
(Value of Securities - Debit Balance) / Value of securities = ?
Margin
The following are the advantages of what? 1. Allows use of financial leverage 2. Magnifies profits
Margin Trading
The following are the disadvantages of what? 1. Magnifies losses 2. Interest expense on [answer] loan 3. [answer] calls
Margin Trading
The following describes which basic type of securities transaction? 1. Uses borrowed funds to purchase securities 2. Currently owned securities used as collateral for margin loan from broker 3. Margin requirements set by Federal Reserve Board 4. Can be used for common stocks, preferred stocks, bonds, mutual funds, options, warrants and futures.
Margin Trading
Bull and Bear Markets are the general ____________s.
Market Conditions
The secondary market where short-term securities are bought and sold is called what?
Money Market
The following describes which Exchange market? 1. More than 500 companies listed 2. Major market for Exchange Traded Funds 3. Typically SMALLER and YOUNGER companies who cannot meet stricter listing requirements for NYSE.
NYSE Amex
The following describes which Dealer Market? 1. Largest Dealer Market 2. Lists large companies (Microsoft, Intel, Dell, eBay) and smaller companies
Nasdaq
Which secondary market employs an all electronic trading platform to execute trades?
Nasdaq Market
What is the largest and most well known Broker Market?
New York Stock Exchange (NYSE)
What is the Minimum Initial Margin (Equity) Required for Options?
Option premium plus 20% of market value of underlying stock
The following describes which Exchange market? 1. Allows trading of options 2. Best-Known: Chicago Board Options Exchange (CBOE)
Options Exchange
The following describes which Dealer Market? 1. Lists smaller companies that cannot or don't wish to be listed on Nasdaq 2. Companies are regulated by SEC
Over the Counter (OTC) Bulletin Board
Which secondary market involves trading in smaller, unlisted securites?
Over the Counter (OTC) Market
The following describes which Dealer Market? 1. Lists smaller companies that are NOT regulated by SEC 2. Liquidity is minimal or almost non-existent 3. Very risky; many nearly worthless stocks
Over the Counter (OTC) Pink Sheets
The following are the 3 choices to market securities in the ________. 1. Public offering 2. Rights offering 3. Private Placement
Primary Market
The registration statement describing the issue and the issuer is called what?
Prospectus
The time period after prospectus is filed when a company must restrict what is said about the company is called what?
Quit Period
The preliminary prospectus available during the waiting period is called what?
Red Herring
The following describes which Exchange market? 1. Typically lists between 100-500 companies, usually with local and regional appeal 2. Listing requirements are more lenient that NYSE 3. Often include stocks that are alo listed on NYSE or NYSE Amex 4. Best-Known: Midwest, Pacific, Philadelphia, Boston, and Cincinnati.
Regional Stock Exchange
(Total Current Income Received - Total Interest Paid on Margin Loan + Market Value of Securities at sale - Market value of securities at purchase) / Amount of equity at purchase = ?
Return on Invested Capital (ROIC)
The series of presentations to potential investors is called what?
Road Show
Which Securities market regulation tightened accounting and audit guidelines to reduce corporate fraud?
Sarbanes-Oxley Act of 2002
Securities Exchanges, the Nasdaq Market, and the OTC Market are all examples of which market?
Secondary Market
The market in which new issues of securities are sold to the public is called what?
Secondary Market
The market in which securities are traded after they have been issued are called what?
Secondary Market
The market in which securities are traded after they have been issued is called what?
Secondary Market
The role of _____________s is to provide liquidity to security purchasers, and to provide a continuous pricing mechanism.
Secondary Market
Which Securities market regulation required full disclosure of information by companies?
Securities Act of 1933
Which Securities market regulation Established SEC as government regulatory body?
Securities Act of 1934
Which Securities market regulation abolished fixed-commissions and established an electronic communications network to make stock pricing more competitive?
Securities Acts Amendments of 1975
Which Secondary Market are forums where buyers and sellers of securities are brought together to execute trades is called what?
Securities Exchanges
Other brokerage firms that hep the underwriting syndicate sell issue to the public are called _______s.
Selling Group
The advantage of__________ is the chance to profit when the stock price declines.
Short Selling
The following are disadvantages to what? 1. Limited return opportunities: stock prices cannot go below $0.00 2. Unlimited Risks: stock price can go up an unlimited amount 3. If stock price goes up, this investor still needs to buy shares to pay back the "borrowed" shares to the broker 4. This type of investing may not earn dividends
Short Selling
The following describes which basic type of securities transaction? 1. Investor sells securities they don't own 2. Investor borrows security from broker 3. Broker lends securities owned by other investors that are held in "Street Name" 4. "Sell high and buy low" 5. Investors make money when stock prices go down.
Short Selling
The following describes which market? 1. Large institutional investors go through Market Makers that are not member of a securities exchange. 2. Institutional Investors (Mutual funds, life insurance companies, pension funds) receive reduced trading costs due to large size of transactions.
Third Market
A public announcement of issue and role of participants in the underwriting process is called what?
Tombstone
9:30 to 16:00 Eastern Time
Trading Session for U.S. Exchanges and Nasdaq
A group formed by an investment banker to share the financial risk of underwriting is called what?
Underwriting Syndicate
When an investment banker purchases a security at an agreed on price and bears the risk of reselling it to the public it is called what?
Underwriting the Issue
Promoting the stock and facilitating the sale of the company's shares is called what?
Underwriting the Offering
