Question 1

A margin call from a broker means that the investor is required to provide more collateral (cash or stocks)or sell the stock.

Accepted Answer

A) True 
 B)False  True

Question 2

The Division of ____ of the SEC requires the orderly disclosure of securities trades by various organizations that facilitate the trading of securities.

Accepted Answer

A) Corporation Finance 
B) Enforcement 
C) Administration 
D) Trading and Markets 
A) Corporation Finance 
B) Enforcement 
C) Administration 
D) Trading and Markets D

Question 3

The transaction costs associated with international trading of stocks have been reduced by

Accepted Answer

A) the consolidation of stock exchanges. 
B) extensive computerization of stock exchanges. 
C) the Eurolist system. 
D) All of these are correct. 
A) the consolidation of stock exchanges. 
B) extensive computerization of stock exchanges. 
C) the Eurolist system. 
D) All of these are correct. D

Question 4

A stop-loss order is a particular type of limit order whereby the investor specifies a selling price that is below the current market price of the stock.

Accepted Answer

A) True 
 B)False

Question 5

A criticism of dark pools is that they

Accepted Answer

A) reduce transparency. 
B) are more expensive than the public stock exchanges. 
C) are not accessible to institutional investors. 
D) cannot be used to trade large blocks of stock. 
A) reduce transparency. 
B) are more expensive than the public stock exchanges. 
C) are not accessible to institutional investors. 
D) cannot be used to trade large blocks of stock.

Question 6

In naked short selling, short-sellers sell a stock short that they currently own.

Accepted Answer

A) True 
 B)False

Question 7

Electronic communications networks are primarily intended to prevent executives from using inside information when trading stocks.

Accepted Answer

A) True 
 B)False

Question 8

On May 6, 2010, the "__________" occurred, when stocks on the New York Stock Exchange declined by more than 9 percent on average before reversing and recovering most of those losses on that same day. Much of the trading occurred within a half hour.

Accepted Answer

A) credit default crisis 
B) swap crisis 
C) specialist crash 
D) flash crash 
A) credit default crisis 
B) swap crisis 
C) specialist crash 
D) flash crash

Question 9

When the ratio of the number of shares of a stock sold short divided by the total number of shares outstanding is 3 percent or higher, this suggests a large amount of short positions in the market, which implies that a relatively large number of investors expect the stock's price to decline.

Accepted Answer

A) True 
 B)False

Question 10

Traders that engage in high frequency trading commonly close out their positions in

Accepted Answer

A) one day. 
B) one month. 
C) three months. 
D) one year. 
A) one day. 
B) one month. 
C) three months. 
D) one year.

Question 11

Investors can reduce their risk by purchasing a stock on margin instead of using all cash to buy the stock.

Accepted Answer

A) True 
 B)False

Question 12

High frequency traders set up their own _________ that specify the conditions under which a specific stock should be purchased or sold, the size of the transaction, and the price that should be paid.

Accepted Answer

A) algorithms 
B) inverse programs 
C) circuit breakers 
D) nextron networks 
A) algorithms 
B) inverse programs 
C) circuit breakers 
D) nextron networks

Question 13

Regulation Fair Disclosure (FD)requires firms to disclose relevant information first to their most important clients.

Accepted Answer

A) True 
 B)False

Question 14

Assume a stock is initially priced at $50, and pays an annual $2 dividend. An investor uses cash to pay $25 a share and borrows the remaining funds at a 12 percent annual interest. What is the return if the investor sells the stock for $55 at the end of one year?

Accepted Answer

A) 50 percent 
B) 30 percent 
C) 10 percent 
D) 16 percent 
E) 8 percent 
A) 50 percent 
B) 30 percent 
C) 10 percent 
D) 16 percent 
E) 8 percent

Question 15

Which of the following is incorrect in regard to short selling?

Accepted Answer

A) Naked short selling involves selling a stock short without first borrowing the stock. 
B) During the credit crisis, the SEC temporarily protected more than 800 firms from short selling. 
C) The SEC's uptick rule prevents speculators from taking a short position in stocks that have declined at least 30 percent for the day, except when the most recent trade resulted in an increase in the stock price. 
D) During the credit crisis, some short-sellers focused particularly on the stocks of financial institutions. 
E) None of these are correct. 
A) Naked short selling involves selling a stock short without first borrowing the stock. 
B) During the credit crisis, the SEC temporarily protected more than 800 firms from short selling. 
C) The SEC's uptick rule prevents speculators from taking a short position in stocks that have declined at least 30 percent for the day, except when the most recent trade resulted in an increase in the stock price. 
D) During the credit crisis, some short-sellers focused particularly on the stocks of financial institutions. 
E) None of these are correct.

Question 16

To prosecute defendants connected with the Galleon Fund for __________, the government effectively used wiretap evidence.

Accepted Answer

A) dark pool trading 
B) naked short selling 
C) insider trading 
D) accounting fraud 
A) dark pool trading 
B) naked short selling 
C) insider trading 
D) accounting fraud

Question 17

When investors buy stock with borrowed funds, this is sometimes referred to as

Accepted Answer

A) use of proxy. 
B) purchasing stock on margin. 
C) a margin call. 
D) a margin residual claim. 
A) use of proxy. 
B) purchasing stock on margin. 
C) a margin call. 
D) a margin residual claim.

Question 18

Which of the following statements is incorrect?

Accepted Answer

A) In a short sale, investors place an order to sell a stock that they do not own. 
B) Investors sell a stock short when they anticipate that its price will rise. 
C) When investors sell short, they will ultimately have to provide the stock back to the investor from whom they borrowed it. 
D) 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. 
A) In a short sale, investors place an order to sell a stock that they do not own. 
B) Investors sell a stock short when they anticipate that its price will rise. 
C) When investors sell short, they will ultimately have to provide the stock back to the investor from whom they borrowed it. 
D) 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.

Question 19

The short interest represents the amount of interest that borrowers owe on loans used to purchase stock.

Accepted Answer

A) True 
 B)False

Question 20

Assume that a stock is priced at $50 and pays an annual dividend of $2 per share. An investor purchases the stock on margin, paying $25 per share and borrowing the remainder from the brokerage firm at 9 percent annual interest. If, after one year, the stock is sold at a price of $65.25 per share, the return on the stock is

Accepted Answer

A) 60 percent. 
B) 44 percent. 
C) 30 percent. 
D) 69 percent. 
A) 60 percent. 
B) 44 percent. 
C) 30 percent. 
D) 69 percent.

Exam 12: Market Microstructure and Strategies

A margin call from a broker means that the investor is required to provide more collateral (cash or stocks)or sell the stock.

The Division of ____ of the SEC requires the orderly disclosure of securities trades by various organizations that facilitate the trading of securities.

The transaction costs associated with international trading of stocks have been reduced by

A stop-loss order is a particular type of limit order whereby the investor specifies a selling price that is below the current market price of the stock.

A criticism of dark pools is that they

In naked short selling, short-sellers sell a stock short that they currently own.

Electronic communications networks are primarily intended to prevent executives from using inside information when trading stocks.

On May 6, 2010, the "__________" occurred, when stocks on the New York Stock Exchange declined by more than 9 percent on average before reversing and recovering most of those losses on that same day. Much of the trading occurred within a half hour.

When the ratio of the number of shares of a stock sold short divided by the total number of shares outstanding is 3 percent or higher, this suggests a large amount of short positions in the market, which implies that a relatively large number of investors expect the stock's price to decline.

Traders that engage in high frequency trading commonly close out their positions in

Investors can reduce their risk by purchasing a stock on margin instead of using all cash to buy the stock.

High frequency traders set up their own _________ that specify the conditions under which a specific stock should be purchased or sold, the size of the transaction, and the price that should be paid.

Regulation Fair Disclosure (FD)requires firms to disclose relevant information first to their most important clients.

Assume a stock is initially priced at $50, and pays an annual $2 dividend. An investor uses cash to pay $25 a share and borrows the remaining funds at a 12 percent annual interest. What is the return if the investor sells the stock for $55 at the end of one year?

Which of the following is incorrect in regard to short selling?

To prosecute defendants connected with the Galleon Fund for __________, the government effectively used wiretap evidence.

When investors buy stock with borrowed funds, this is sometimes referred to as

Which of the following statements is incorrect?

The short interest represents the amount of interest that borrowers owe on loans used to purchase stock.

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance and Pension Fund Operations

Pension Fund Operations

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