Question 1

A ____ is a trading platform on a computer website that allows investors to trade stocks without the use of a broker.

Accepted Answer

A)  direct access broker 
B)  program trader 
C)  market maker 
D)  communication network 
A)  direct access broker 
B)  program trader 
C)  market maker 
D)  communication network A

Question 2

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  False

Question 3

____ may facilitate transactions on a stock exchange by executing stock transactions for their clients.

Accepted Answer

A)  Board members 
B)  Capstone members 
C)  Floor brokers 
D)  None of the above 
A)  Board members 
B)  Capstone members 
C)  Floor brokers 
D)  None of the above C

Question 4

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 5

Which of the following statements about program trading is incorrect?

Accepted Answer

A)  It represents a computerized response by institutional investors to either buy or sell a large basket of stocks in response to movements in a particular stock index. 
B)  It may involve the purchase of stocks that have become "underpriced." 
C)  It may involve the sale of stocks that have become "overpriced." 
D)  It is designed to capitalize on Federal Reserve monetary policy announcements. 
E)  None of the above 
A)  It represents a computerized response by institutional investors to either buy or sell a large basket of stocks in response to movements in a particular stock index. 
B)  It may involve the purchase of stocks that have become "underpriced." 
C)  It may involve the sale of stocks that have become "overpriced." 
D)  It is designed to capitalize on Federal Reserve monetary policy announcements. 
E)  None of the above

Question 6

Dark pools:

Accepted Answer

A)  are private stock markets used by institutional investors. 
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 private stock markets used by institutional investors. 
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 7

The NYSE defines ____as the simultaneous buying and selling of a portfolio of at least 15 different stocks that are valued at more than $1 million.

Accepted Answer

A)  direct access brokering 
B)  electronic communication networking 
C)  program trading 
D)  regulation of stock trading 
A)  direct access brokering 
B)  electronic communication networking 
C)  program trading 
D)  regulation of stock trading

Question 8

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 9

When investors sell short, they are essentially lending the stock to another investor and will ultimately receive that stock back from the investor to whom they lent it.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

The exchange rate risk associated with international trading of stock has been reduced by

Accepted Answer

A)  information available on the Internet. 
B)  extensive computerization of stock exchanges. 
C)  the conversion of many European countries to a single currency. 
D)  the Eurolist system. 
A)  information available on the Internet. 
B)  extensive computerization of stock exchanges. 
C)  the conversion of many European countries to a single currency. 
D)  the Eurolist system.

Question 13

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 14

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

Accepted Answer

A) True 
 B)False

Question 15

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 16

Mark would like to purchase a stock priced at $70. Mark thinks he can sell the stock for $100 after one year. If Mark does not borrow any money from his brokerage firm, what is the estimatedreturn on the stock?

Accepted Answer

A)  30.00 percent 
B)  -42.86 percent 
C)  -30.00 percent 
D)  42.86 percent 
E)  none of the above 
A)  30.00 percent 
B)  -42.86 percent 
C)  -30.00 percent 
D)  42.86 percent 
E)  none of the above

Question 17

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

Question 18

Which of the following statements is incorrect with respect to the structure of the SEC?

Accepted Answer

A)  It is composed of seven commissioners appointed by the president of the United States. 
B)  The president selects one commissioner to chair the commission. 
C)  Each commissioner serves a five-year term. 
D)  Commissioners' terms are staggered. 
E)  Commissioners meet to assess whether existing regulations are successfully preventing abuses and to revise the regulations as needed. 
A)  It is composed of seven commissioners appointed by the president of the United States. 
B)  The president selects one commissioner to chair the commission. 
C)  Each commissioner serves a five-year term. 
D)  Commissioners' terms are staggered. 
E)  Commissioners meet to assess whether existing regulations are successfully preventing abuses and to revise the regulations as needed.

Question 19

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

Question 20

Until recently, international trading of stocks was limited by

Accepted Answer

A)  transaction costs 
B)  information costs. 
C)  exchange rate risk. 
D)  all of the above 
A)  transaction costs 
B)  information costs. 
C)  exchange rate risk. 
D)  all of the above

Exam 12: Market Microstructure and Strategies

A ____ is a trading platform on a computer website that allows investors to trade stocks without the use of a broker.

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

____ may facilitate transactions on a stock exchange by executing stock transactions for their clients.

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

Which of the following statements about program trading is incorrect?

Dark pools:

The NYSE defines ____as the simultaneous buying and selling of a portfolio of at least 15 different stocks that are valued at more than $1 million.

A criticism of dark pools is that they:

When investors sell short, they are essentially lending the stock to another investor and will ultimately receive that stock back from the investor to whom they lent it.

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

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

The exchange rate risk associated with international trading of stock has been reduced by

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

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

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

Mark would like to purchase a stock priced at $70. Mark thinks he can sell the stock for $100 after one year. If Mark does not borrow any money from his brokerage firm, what is the estimatedreturn on the stock?

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.

Which of the following statements is incorrect with respect to the structure of the SEC?

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

Until recently, international trading of stocks was limited by

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 Operations

Pension Fund Operations

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