INVESTMENT CHAPTER 4
A block trade is one which involves a minimum of 1,000 shares. 5,000 shares. 10,000 shares. 100,000 shares. 1,000,000 shares.
10,000 Shares
Regional exchanges exist because They provide trading facilities for local companies They allow local brokers to trade dual listed stocks They allow for trading of local bonds a and b. b and c
A and B
When an investor borrows part of the investment cost it is known as A short sale. A fill or kill order. A margin transaction. A limit order. Going long.
A margin transaction
Floor brokers on the New York Stock Exchange Use their membership to buy and sell for their own account. Are employees of a member firm and buy and sell for customers of the firm. Handle limit and other orders placed by other brokers. Act as brokers for other members. Maintain a fair and orderly market.
Act as brokers for other members.
Municipal bonds are sold using the following method or methods: Competitive bid Negotiated sale Private placement All of the above None of the above
All of the Above
Which of the following is an underwriting function? Origination Risk-bearing Distribution Choices b and c All of the above
All of the Above
All of the following are advantages of secondary markets except Provide liquidity to individuals holding the securities. Support the primary market by reducing the required rate of return due to the lower liquidity risk for securities. Provide price discovery for corporations selling seasoned securities. Impact market efficiency and price volatility. All of the above are advantages of secondary markets.
All of the above
Which of the following is not a characteristic of a good market for goods and services? Timely and accurate information Liquidity Low transaction costs External efficiency All of the above are characteristics of a good market.
All of the above
Which of the following statements about a market is true? It is not necessary for the market to have a physical location. The market does not necessarily own the goods or services involved. A market can deal in any variety of goods and services. All of the above None of the above
All of the above
Which of the following is not a characteristic of shelf registrations? Shelf registrations: Were introduced by Rule 415. Allow large firms to register security issues and sell them piecemeal during the following six years. Provide flexibility and reduce registration fees and expenses. Are typically used for the sale of straight debentures rather than common stock or convertible issues. All of the above are characteristics of shelf registrations.
Allow large firms to register security issues and sell them piecemeal during the following six years.
Which of the following is not a function of the specialist? Assists the Federal Reserve in controlling the money supply Acts as a broker who handles the limit orders or special orders placed with member brokers Buys and sells securities in order to stabilize the market Acts as a dealer in assigned stocks to maintain a fair and orderly market All of the above are functions of a specialist
Assists the Federal Reserve in controlling the money supply
A pure auction market is one in which Dealers provide liquidity by buying and selling shares of stock for themselves. Dealers compete against each other to provide the highest bid and lowest asking prices. Buyers submit bid prices to sellers. Sellers submit ask prices to buyers. Buyers and sellers submit bid and ask prices to a central location to be matched.
Buyers and sellers submit bid and ask prices to a central location to be matched.
All of the following are characteristics of a dealer market except: Also referred to as a quote-driven market NASDAQ market is a dealer market Individual dealers buy and sell shares for themselves Centralized trading location All of the above are characteristics of a dealer market
Centralized trading location
A 1994 study concluded dealers were colluding to maintain wide bid/ask spreads by concentrating market quotes in quarters instead of eighths. This study eventually led to new order handling rules that required quotes to be available to the public through: NASDAQ market Electronic communications networks (ECN) High frequency trading (HFT) Algorithmic trading (AT) Intermarket trading system (ITS)
Electronic communications networks (ECN)
A corporation wishing to raise funds will normally want the investment banker to use a "best efforts" arrangement rather than a negotiated basis.
False
A market where prices adjust rapidly to new information is considered to be internally efficient.
False
A pure auction market is also referred to as a quote-driven market.
False
If transaction prices are volatile, but long-term prices are stable, this is referred to as price continuity.
False
In a dealer market trading system shares of stock are sold to the investor with the highest bid price and bought from the seller with the lowest offering price.
False
Initial public offerings (IPOs) involve selling of bonds to the public for the first time.
False
It is required by law that a stock market must have a physical location
False
Only the stocks of large companies are traded in the primary market
False
Rule 415 allows corporations to place securities privately with large, sophisticated institutional investors without extensive registration documents.
False
Rule 415, shelf registration, allows large firms to register ten years worth of financing needs all at one time.
False
Secondary equity issues are new shares offered by firms that already have stock outstanding.
False
Short selling is practiced when an investor borrows part of the cost of the investment, e.g., they are "short" on cash.
False
Specialists provide added liquidity in the Nasdaq market.
False
The NYSE is a dealer market.
False
The Nasdaq National Market System is an order driven market.
False
The value of the stocks traded in the over-the-counter market is greater than the combined values of the stocks traded on the New York Stock Exchange and the American Stock Exchange combined.
False
Which of the following is not a major category of membership in stock exchanges? Specialist Commission broker Floor broker Financial analyst Registered trader
Financial analyst
An order that specifies the highest buy or lowest sell price is a Limit order. Short sale. Market order. Margin call. Stop loss.
Limit Order
Investors can leverage their stock transactions with the use of Margin orders Stop loss orders Limit orders Market orders Specialists Add
Margin orders
The US secondary market with the largest number of issues traded is the: AMEX NASDAQ NYSE LSE Both a and c
NASDAQ
In a negotiated bid, the underwriter carries out the following service(s) Origination, risk-bearing, and distribution. Origination and risk-bearing. Risk-bearing and distribution. Origination and distribution. Risk-bearing and distribution.
Origination, risk-bearing, and distribution.
When a market is externally efficient, it means that Timely and accurate information is available The market is liquid Transaction costs are low Prices adjust rapidly to new information The number of buyers and sellers are the same
Prices adjust rapidly to new information
The member of the New York Stock Exchange who acts as a dealer on assigned stocks is known as a Registered trader. Commission broker. Registered broker. Floor broker. Specialist.
Specialist
In a call market, trading for individual stocks Occurs anytime the market is open. Takes place at specific times. Takes place at the open and close of the trading day. All of the above. None of the above.
Takes place at specific times.
Trading in the secondary markets for Corporate bonds Takes place through a network of primary dealers Takes place over the counter by dealers who buy and sell on their own account Takes place on the NYSE bond annex All of the above None of the above
Takes place over the counter by dealers who buy and sell on their own account
Trading in the secondary markets for U.S. Government and municipal bonds Takes place through a network of primary dealers Takes place over the counter by dealers who buy and sell on their own account Takes place on the NYSE bond annex All of the above None of the above
Takes place through a network of primary dealers
When a market is internally efficient, it means that The market has price continuity. The market has minimal transactions costs The market has good depth The market has more buyers than sellers The market has more sellers than buyers
The market has minimal transactions costs
Secondary markets are important because The prevailing market price of securities is determined in the secondary market It has an impact on price stability It has an impact on price continuity All of the above None of the above
The prevailing market price of securities is determined in the secondary market
Which of the following is not a secondary equity market? Treasury market National exchanges Regional exchanges Over-the-counter market All of the above are secondary equity markets
Treasury Market
A block house is a brokerage firm that buys and sells blocks of stock for institutions.
True
A continuous market that has price continuity requires depth of buyers and sellers.
True
A good secondary market is important to the efficiency of the primary market.
True
A market is a means through which buyers and sellers are brought together to aid in the transfer of goods and/or services.
True
Global trading has eroded the NYSE's share of the market for NYSE-listed stocks.
True
In a pure auction market buyers and sellers submit bid-and-ask prices for a given stock to a central location.
True
In recent years there has been a trend toward the consolidation of existing exchanges in developed markets, such as London, Frankfurt and Paris.
True
Listed stocks traded on the over-the-counter market are being traded in the third market.
True
Margin transaction involves borrowing part of the cost of an investment.
True
Negotiation, competitive bids, and best efforts are three forms of underwriting arrangements.
True
Rule 144A reduced registration documentation requirements for placing securities privately with large institutional investors.
True
Super DOT is an electronic order-routing system through which member firms can transmit market and limit orders directly to the posts where the securities are traded.
True
The NYSE has dominated the other U.S. exchanges in trading volume.
True
The over-the-counter market includes all stocks not listed on one of the major exchanges but constitutes a lesser of a dollar value than the New York and American Exchanges combined
True
The over-the-counter market lists more stocks than the New York Stock Exchange and the American Stock Exchange combined.
True
Informational efficiency is where the cost of acquiring information is very cheap.
false
The primary market is where issues are traded between current and potential owners.
false
With a best effort offering, the investment banker performs all of the following roles except: determines the fee paid to themselves for handling the issue. manages the selling group for the new issue. evaluates market conditions and determines the characteristics of the security. guarantees the selling price for the entire issue to the firm issuing the securities. All of the above are true.
guarantees the selling price for the entire issue to the firm issuing the securities.
The basic distinction between a primary and a secondary market is proceeds from sales in the primary market go to the current owner of a security; proceeds in secondary market go to the original owner. primary markets involve direct dealings within regional exchanges. only new securities are sold in the primary market; only outstanding securities are bought and sold in the secondary market. primary markets deal exclusively in bonds; secondary markets deal primarily in common stock. None of the above.
only new securities are sold in the primary market; only outstanding securities are bought and sold in the secondary market
