Chapter 4 Investments

10. Most corporate bonds are traded on the New York Stock Exchange.

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3. Many investors like to buy stocks at, or shortly after, an IPO because the prices of IPO's almost always go up.

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7. Both the NYSE and NADAQ use specialists to ensure orderly markets in the stocks to which they are assigned.

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Investment banks usually form "syndicates" to spread the risk of prices dropping significantly while the banks are reselling to the public.

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The major primary securities market in the United States is the New York Stock Exchange.

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10. Which of the following U.S. stock market indexes is most heavily influenced by the performance of large capitalization technology stocks? a) NASDAQ Composite Index. b) S&P 500. c) Dow Jones Industrial Average. d) Russell 2000.

a) NASDAQ Composite Index.

17. Which of the following bond markets has the most liquidity? a) NYSE's Automated Bond System b) The Treasury bond market c) The Agency bond market d) The Municipal bond market

a) NYSE's Automated Bond System

8. NYSE has specialists, but NASDAQ does not. How does NASDAQ handle the function that the specialists provide to NYSE? a) On NASDAQ, several market makers supply bid and ask prices for each stock. b) On NASDAQ, only one market maker is supplying bid and ask prices for each stock. c) NASDAQ links brokers electronically, so specialists are not necessary. d) NASDAQ cannot afford to pay specialists, because its commissions are lower.

a) On NASDAQ, several market makers supply bid and ask prices for each stock.

13. Which of the following is a price-weighted stock index? a) The Dow Jones Industrial Average b) Standard & Poor's 500 Composite Index c) The NYSE Composite index d) The Russell 2000 Index

a) The Dow Jones Industrial Average

4. Which of the following is NOT an advantage of private placements of securities? a) The securities, usually debt, are offered to a wide range of private investors. b) The issuer does not have to register with the SEC. c) Investment bankers' fees are reduced or eliminated. d) The issue is offered to a small number of very large, institutional investors.

a) The securities, usually debt, are offered to a wide range of private investors.

20. Which of the following is NOT an example of some recent innovations in securities markets? a) the "open outcry" method. b) the national market system c) the intermarket trading system d) Electronic Communications Networks

a) the "open outcry" method.

1. Which of the following is a major reason why financial markets are so important for our economy? a) Financial markets provide a location for speculators to make tremendous profits. b) Financial markets provide the channel for funds to move from savers to those who use the funds. c) Financial markets provide an excellent return for savers who do not currently need their funds. d) Financial markets provide a method for large users of funds to outbid smaller users for limited funds.

b) Financial markets provide the channel for funds to move from savers to those who use the funds.

18. Where is a good source for a small investor to find information on bond prices? a) Brokerage firms b) Internet sites c) The bond issuer d) Institutional bond dealers

b) Internet sites

9. Which of the following countries is NOT considered an "emerging market"? a) Brazil b) Japan c) India d) China

b) Japan

19. The trading in stock options, such as on the Chicago Board Options Market, is most similar to which of the following financial markets? a) New York Stock Exchange specialists b) NASDAQ market makers c) Futures exchange "open outcry" d) Electronic Communications Networks electronic matching

b) NASDAQ market makers

6. What is an advantage for investors of trading securities on the New York Stock Exchange? a) NYSE has the lowest commissions. b) All US stocks are traded on NYSE. c) NYSE has very many participants, providing a very liquid market. d) The major brokers, such as Merrill Lynch, also act as specialists on NYSE.

c) NYSE has very many participants, providing a very liquid market.

7. Which of the following is NOT a factor when the NYSE considers whether a company can list on the NYSE? a) The degree of nation-wide interest in the company. b) The levels of profits and assets in the company. c) The company has its headquarters in the US. d) The company has a strong position in its industry.

c) The company has its headquarters in the US.

2. Why do most companies use investment bankers to help with IPOs? a)The use of investment bankers is required by the Securities and Exchange Commission. b) The investment banks have huge amounts of money, and seek many investment opportunities. c) The investment banks have substantial expertise in pricing and distributing the new issue. d) The investment banks offer their services to companies in many countries.

c) The investment banks have substantial expertise in pricing and distributing the new issue.

5. Which of the following is NOT one of the three major equity markets? a) New York Stock Exchange b) American Stock Exchange c) NASDAQ d) Electronic Communications Networks

d) Electronic Communications Networks

16. Where are most corporate bonds traded? a) NYSE b) AMEX c) NASDAQ d) Over the counter

d) Over the counter

11. Which of the following U.S. stock market indexes provides the best measure of mid-capitalization companies? a) Wilshire 5000 b) Russell 2000 c) MSCI EAFE Index d) S&P 400

d) S&P 400

3. Which of the following is NOT a role of investment bankers? a) Help companies prepare for IPOs. b) Designing and selling securities in the primary markets. c) Assisting retail investors with their stock and bond purchases. d) Setting the rules for the entire investment sector.

d) Setting the rules for the entire investment sector.

12. Which of the following financial centers does NOT have a major stock exchange, similar to the NYSE? a) New York b) London c) Tokyo d) Shanghai

d) Shanghai

14. Which of the following indexes is a better index for tracking "small cap" stocks? a) The Dow Jones Industrial Average b) Standard & Poor's 500 Composite Index c) The NYSE Composite index d) The Russell 2000 Index

d) The Russell 2000 Index

15. Which of the following is the best stock index? a) The Dow Jones Industrial Average b) The S&P 500 c) The Wilshire 5000 Index d) The index deemed "best" will differ depending on what the user is looking for.

d) The index deemed "best" will differ depending on what the user is looking for.

8. ECNs, such as Instinet, trade securities anonymously and inexpensively.

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Although the Dow-Jones Average is more often reported in the popular press, the S&P 500 index is considered a better representation of "the market."

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Private placements involve the sale of securities - usually debt - to large, sophisticated investors.

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The NYSE has stricter listing requirements than either AMEX or NASDAQ.

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The first time a corporation offers an issue of stock to the general public is called an Initial Public Offering (IPO).

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