chapter 7 text questions

If a trade in municipal securities is T + 2, it is [A]regular way. [B]cash. [C]when issued. [D]delayed delivery.

A. the regular way Regular way settlement is T + 2 (trade date + 2 full business days). Cash settlement is same day.

Assume an investor sells short 100 shares of ABC and while the investor has the short stock position, ABC pays a dividend. The investor: [A]Owes the dividend to the lender of the stock. [B]Will Receive the dividend from the lender of the stock.[C]Will not be involved in the dividend situation in any way.[D]Will receive the dividend from the company and also from the lender of the stock.

A]Owes the dividend to the lender of the stock.

Transactions that may be done in a cash account include all EXCEPT: [A]The sale of preferred stock[B]A short sale of common stock[C]The sale of a covered put option[D]The sale of a covered call option

B]A short sale of common stock

Which of the following are uses of a stop order? To assure an execution at a specific price To protect the profit on a long position of a customer To limit the loss on a short position for a customer [A]I and II[B]II and III[C]I and III[D]All

B]II and III Choices II and III are correct. Choice I is incorrect because stop orders become market orders and cannot be guaranteed a specific price of execution.

Which of the following describes the difference between the trading of a listed versus unlisted security? [A]Unlisted securities are primarily traded on the floor of a stock exchange.[B]Listed securities are primarily traded on the floor of a stock exchange.[C]Listed securities are traded by market-makers only who buy and sell for and from their own inventory.[D]Unlisted securities primarily trade in foreign markets.

B]Listed securities are primarily traded on the floor of a stock exchange

When an investor borrows stock from their firm for the purpose of a short sale, the borrowed stock: [A]must be returned within five business days from the date borrowed.[B]may be borrowed indefinitely, although the firm has the right to demand the return at any time.[C]must be returned within three business days from the date borrowed.[D]may be borrowed indefinitely and the firm may not demand the return until the investor realizes a profit.

B]may be borrowed indefinitely, although the firm has the right to demand the return at any time.

Which of the following is NOT affiliated with the Depository Trust Clearing Company (DTCC)? [A]The National Securities Clearing Corporation (NSCC)[B]Continuous Net Settlement (CNS)[C]Federal Deposit Insurance Corporation (FDIC)[D]Fixed Income Clearing Corporation (FICC)

C]Federal Deposit Insurance Corporation (FDIC)

If a security has just been quoted ex-dividend, which of the following open orders will be automatically reduced by the designated market maker? Buy limit orders Sell limit orders Stop orders to buy Stop orders to sell [A]I and III[B]II and IV[C]I and IV[D]II and III

C]I and IV

An over-the-counter stock trader is given a quote of "14-15 workout." This quote is: [A]bona fide.[B]firm.[C]subject to confirmation.[D]approximate.

C]subject to confirmation. Workout quotes are subject quotes

All of the following responses by a market maker reflect a firm quote, except [A]"It is 5 - 5 1/4." [B]"We'll do it 5 - 5 1/4."[C]"5 - 5 1/4 firm." [D]"It is quoted 5 - 5 1/2."

D]"It is quoted 5 - 5 1/2."

Some time after a short sale of 100 ABC, while the client is still short, ABC pays a 6% stock dividend. To close the short, the seller will deliver or purchase [A]94 shares[B]100 shares[C]100 shares plus a due bill[D]106 shares

D]106 shares To cover a short position, customers are required to deliver or buy the original number of shares sold short, PLUS, any additional shares from stock dividends or splits.

All of the following are true with regard to a short against box position except: [A]The strategy can be used as a hedge.[B]The strategy can be used to lock in a profit on an established long position.[C]investors could arbitrage between two markets by going long in one market and short in another.[D]Investors can postpone taxation on positions by going short against the box.

D]Investors can postpone taxation on positions by going short against the box.

A designated market maker can accept all of the following types of orders EXCEPT a: [A]Day[B]Open[C]Not held[D]Market

c. not held

The term "secondary market" refers to [A]trading in outstanding issues. [B]issues banks are not permitted to underwrite.[C]private placements.[D]trading in low quality issues.

[A]trading in outstanding issues.

Of the following types of orders, which would be used to obtain a specific price of execution or better? [A]Buy Stops and Sell Stops [B]Buy Stops and Sell Limits [C]Buy Limits and Sell Limits [D]Buy Limits and Sell Stops

[C]Buy Limits and Sell Limits EXPLANATION Limit orders (buy and sell) are used to obtain a specific price of execution or better. Stop orders become market orders and are used to protect an existing position or profit. Market orders are executed at the market price at the time the order is placed.

Which of the following are true when the designated market maker engages in the practice of stopping stock? He may stop stock for customer orders from NYSE member firms. The designated market maker guarantees a specific price while the broker tries to do better. The designated market maker guarantees the purchase or sale of a specific number of shares at a given price. A Floor Governor's permission is necessary before the designated market maker can grant a stop. [A]I and II[B]I, III, and IV[C]I, II, and III[D]All of the above

[C]I, II, and III

Which of the following statements concerning the designated market maker is INCORRECT? [A]If a customer changed a day order to buy 100 ESN at $58 to a GTC order, the order would be changed in the designated market maker's book because the of the change in the duration of the order.[B]All orders entered with the DMM except day orders are GTC orders.[C]The designated market maker will reduce only open limits to sell and open stop orders to buy by the amount of the distribution on the ex-date.[D]The designated market maker can accept market orders, open orders, and day orders.

[C]The designated market maker will reduce only open limits to sell and open stop orders to buy by the amount of the distribution on the ex-date.

A customer who owns a security sells an equivalent number of shares short and does not deliver the long shares that he owns. This is called [A]arbitrage.[B]a wash sale.[C]disintermediation.[D]selling against-the-box.

[D] selling against-the-box.

A broker-dealer bought ABC stock at 8 for its inventory position. A month later when the inter-dealer market for ABC was 10.50 -- 11.25, the broker-dealer sold the stock to a customer. The dealer's markup will be based on: [A]8.00 [B]8.75 [C]10.50 [D]11.25

[D]11.25 Broker-dealers must trade with customers based on the current bid and ask. 10.50 Bid for customers selling11.25 Ask for customers buying

Which of the following is true concerning the over-the-counter market? [A]It is where customers buy and sell securities publicly with each other on an exchange floor. [B]It is an auction market.[C]Listed securities are never traded in this market. [D]It is where prices are negotiated between broker-dealers.

[D]It is where prices are negotiated between broker-dealers. EXPLANATION The OTC market is a negotiated market where listed and non-listed securities trade. When listed securities trade OTC, it is called the "Third Market".

Your customer, Mr. Abrams is long 500 WLL and short 500 WLL. The WLL Company makes a cash tender offer substantially above the current market price. To take advantage of this tender offer, Mr. Abrams should [A]sell the long position.[B]deliver the long position against the short position.[C]tender the long position.[D]cover the short position.

[D]cover the short position.

Which of the following best describes an order to buy or sell while the floor broker uses his judgment in the execution of the order? [A]Stop [B]Not held [C]Limit [D]Market

b. not held

Malta Broadcasting Co. (MBC) announces a plan to acquire the Boston Post Newspaper Co. The terms are 1 Malta for 4 Post. Malta is trading at 41 and Post at 18. Malta's Board meets soon to discuss the proposal. There is concern about the merger being legal under the anti-trust laws. The trader at the brokerage firm of Grin & Barrett purchased 15,000 Malta and sold 7,000 Post short. He has engaged in a market proceeding known as: [A]Optional Hedge[B]Reverse Hedge[C]Risk Arbitrage[D]Tender Offer

c. risk arbitrage

When a customer purchases OTC stock from a market maker, the price the customer pays [A]does not include a mark-up. [B]does include a mark-up.[C]includes a mark-up and a commission. [D]includes neither a mark-up or a commission.

does include a mark up

The Depository Trust & Clearing Corporation's (DTCC's) Continuous Net Settlement (CNS) System acts as central counterparty for clearance and settlement of broker-to-broker transactions in [A]most equity, corporate bond, and municipal bond transactions in the United States.[B]mostly equity securities transactions, with little or no involvement in corporate and municipal debt transactions.[C]mostly corporate and municipal debt transactions, with little or no involvement in equity securities transactions.[D]equity options only, with no involvement in other equity or debt transactions.

most equity, corporate bond, and municipal bond transactions in the United States.