Question 1

A(n)____ from a broker requires the investor to put up additional collateral.

Accepted Answer

A) maintenance margin 
B) initial margin 
C) margin call 
D) trading halt 
A) maintenance margin 
B) initial margin 
C) margin call 
D) trading halt

Question 2

Expert networks consisting of managers or executives of a publicly traded company who are hired as consultants ("experts")by a hedge fund to provide insight about the company

Accepted Answer

A) are illegal under Regulation FD. 
B) are legitimate if the consultants divulge only information that is already public. 
C) have raised concerns that the consultants provide inside information. 
D) are legitimate if the consultants divulge only information that is already public AND have raised concerns that the consultants provide inside information. 
A) are illegal under Regulation FD. 
B) are legitimate if the consultants divulge only information that is already public. 
C) have raised concerns that the consultants provide inside information. 
D) are legitimate if the consultants divulge only information that is already public AND have raised concerns that the consultants provide inside information.

Question 3

Short selling a stock refers to

Accepted Answer

A) poor performance from purchasing an overvalued stock. 
B) the new issuance of low-priced stocks by firms. 
C) the new issuance of stocks by financially weak firms. 
D) the borrowing of stock owned by someone else and selling it in the market. 
A) poor performance from purchasing an overvalued stock. 
B) the new issuance of low-priced stocks by firms. 
C) the new issuance of stocks by financially weak firms. 
D) the borrowing of stock owned by someone else and selling it in the market.

Question 4

Kayla would like to purchase a stock priced at $30. The stock is not expected to pay any dividends in the coming year. She thinks she can sell the stock for $36 after one year. Her estimated return on the stock would be ____ percent.

Accepted Answer

A) 6 
B) 10 
C) 15 
D) 20 
A) 6 
B) 10 
C) 15 
D) 20

Question 5

Trading halts are intended to prevent insider trading.

Accepted Answer

A) True 
 B)False

Question 6

A short-seller

Accepted Answer

A) anticipates that the price of the stock sold short will increase. 
B) earns the difference between what was initially paid for the stock versus what the stock is later sold for. 
C) makes a profit equal to the difference between the original selling price and the price paid for the stock, after subtracting any dividend payments made. 
D) is essentially lending the stock to another investor and will ultimately receive that stock back from that investor. 
E) None of these are correct. 
A) anticipates that the price of the stock sold short will increase. 
B) earns the difference between what was initially paid for the stock versus what the stock is later sold for. 
C) makes a profit equal to the difference between the original selling price and the price paid for the stock, after subtracting any dividend payments made. 
D) is essentially lending the stock to another investor and will ultimately receive that stock back from that investor. 
E) None of these are correct.

Question 7

Dark pools

Accepted Answer

A) are computerized platforms used by institutional investors that operate like private stock markets. 
B) are stocks issued by firms that have disclosed very limited financial information. 
C) are stock option contracts that cover positions in stocks. 
D) are contracts used to bet against the default of a debt instrument. 
A) are computerized platforms used by institutional investors that operate like private stock markets. 
B) are stocks issued by firms that have disclosed very limited financial information. 
C) are stock option contracts that cover positions in stocks. 
D) are contracts used to bet against the default of a debt instrument.

Question 8

The maintenance margin is the minimum amount of the margin that investors must maintain as a percentage of the stock's initial purchase price.

Accepted Answer

A) True 
 B)False

Question 9

A short interest ratio of 20 or higher indicates that many investors

Accepted Answer

A) believe that the stock price is currently overvalued. 
B) believe that the stock price is currently undervalued. 
C) are selling the stock short. 
D) believe that the stock price is currently overvalued AND are selling the stock short. 
A) believe that the stock price is currently overvalued. 
B) believe that the stock price is currently undervalued. 
C) are selling the stock short. 
D) believe that the stock price is currently overvalued AND are selling the stock short.

Question 10

The risk of a short sale is that the stock price

Accepted Answer

A) may decrease over time. 
B) will remain the same. 
C) may increase over time. 
D) None of these are correct. 
A) may decrease over time. 
B) will remain the same. 
C) may increase over time. 
D) None of these are correct.

Question 11

A ____ order to buy or sell a stock means to execute the transaction at the best possible price.

Accepted Answer

A) market 
B) limit 
C) stop-loss 
D) stop-buy 
A) market 
B) limit 
C) stop-loss 
D) stop-buy

Question 12

Assume that a stock is priced at $50 and pays an annual dividend of $2 per share. An investor purchases the stock, using only personal funds and not borrowing from the brokerage firm. 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) 26.5 percent. 
B) 28.5 percent. 
C) 30.5 percent. 
D) 34.5 percent. 
A) 26.5 percent. 
B) 28.5 percent. 
C) 30.5 percent. 
D) 34.5 percent.

Question 13

Many high frequency traders are willing to serve as intermediaries (similar to market makers)by accommodating orders that they believe will ultimately result in profits.

Accepted Answer

A) True 
 B)False

Question 14

While an investor's ability to simultaneously consider multiple markets to accommodate orders was perceived to allow for more competitive pricing (lower transactions costs), it also led to a form of "_______________" whereby traders with relatively faster access to specific markets can use another trader's planned orders and move ahead of that order.

Accepted Answer

A) randomized algo 
B) front running 
C) circuit breaking 
D) specialist surfing 
A) randomized algo 
B) front running 
C) circuit breaking 
D) specialist surfing

Question 15

When the price of a company's stock increases or decreases significantly in advance of a public announcement of an event affecting the company, there are suspicions  that __________ may have occurred.

Accepted Answer

A) bid rigging 
B) default inversion 
C) insider trading 
D) an increase in margin requirements 
A) bid rigging 
B) default inversion 
C) insider trading 
D) an increase in margin requirements

Question 16

Which of the following is incorrect with regard to taxes imposed on stock transactions?

Accepted Answer

A) Stock transactions are subject to dividend and capital gains tax at the federal level and may be subject to state income tax as well. 
B) Stocks have to be held for at least one year to qualify for the long-term capital gains tax. 
C) The maximum federal tax on dividends and long-term capital gains is 14 percent. 
D) Higher tax rates are imposed on the dividends and capital gains of individuals in high tax brackets. 
A) Stock transactions are subject to dividend and capital gains tax at the federal level and may be subject to state income tax as well. 
B) Stocks have to be held for at least one year to qualify for the long-term capital gains tax. 
C) The maximum federal tax on dividends and long-term capital gains is 14 percent. 
D) Higher tax rates are imposed on the dividends and capital gains of individuals in high tax brackets.

Question 17

Trading halts are intended to ensure that the market has complete information before trading on news.

Accepted Answer

A) True 
 B)False

Question 18

You purchase a stock with cash, and you earn a negative return on the stock. If you had purchased the stock with 60 percent cash and 40 percent borrowed funds, your return on your investment would have been

Accepted Answer

A) positive. 
B) more negative than if you had covered the entire investment with cash. 
C) negative, but more favorable than if you had covered the entire investment with cash. 
D) zero. 
A) positive. 
B) more negative than if you had covered the entire investment with cash. 
C) negative, but more favorable than if you had covered the entire investment with cash. 
D) zero.

Question 19

______________ represents the use of electronic platforms to execute orders based on an algorithm with programmed instructions.

Accepted Answer

A) High frequency trading 
B) Mechanical analysis 
C) Liquidity trading 
D) Technical analysis 
A) High frequency trading 
B) Mechanical analysis 
C) Liquidity trading 
D) Technical analysis

Question 20

The short interest ratio is commonly measured as the number of shares sold short divided by the number of shares that the firm has repurchased in the last quarter.

Accepted Answer

A) True 
 B)False

Exam 12: Market Microstructure and Strategies

A(n)____ from a broker requires the investor to put up additional collateral.

Expert networks consisting of managers or executives of a publicly traded company who are hired as consultants ("experts")by a hedge fund to provide insight about the company

Short selling a stock refers to

Kayla would like to purchase a stock priced at $30. The stock is not expected to pay any dividends in the coming year. She thinks she can sell the stock for $36 after one year. Her estimated return on the stock would be ____ percent.

Trading halts are intended to prevent insider trading.

A short-seller

Dark pools

The maintenance margin is the minimum amount of the margin that investors must maintain as a percentage of the stock's initial purchase price.

A short interest ratio of 20 or higher indicates that many investors

The risk of a short sale is that the stock price

A ____ order to buy or sell a stock means to execute the transaction at the best possible price.

Assume that a stock is priced at $50 and pays an annual dividend of $2 per share. An investor purchases the stock, using only personal funds and not borrowing from the brokerage firm. If, after one year, the stock is sold at a price of $65.25 per share, the return on the stock is

Many high frequency traders are willing to serve as intermediaries (similar to market makers)by accommodating orders that they believe will ultimately result in profits.

When the price of a company's stock increases or decreases significantly in advance of a public announcement of an event affecting the company, there are suspicions that __________ may have occurred.

Which of the following is incorrect with regard to taxes imposed on stock transactions?

Trading halts are intended to ensure that the market has complete information before trading on news.

You purchase a stock with cash, and you earn a negative return on the stock. If you had purchased the stock with 60 percent cash and 40 percent borrowed funds, your return on your investment would have been

______________ represents the use of electronic platforms to execute orders based on an algorithm with programmed instructions.

The short interest ratio is commonly measured as the number of shares sold short divided by the number of shares that the firm has repurchased in the last quarter.

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

Filters