Question 1

Trading halts are intended to prevent insider trading.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)  the consolidation of stock exchanges. 
B)  extensive computerization. 
C)  the Eurolist system 
D)  all of the above 
A)  the consolidation of stock exchanges. 
B)  extensive computerization. 
C)  the Eurolist system 
D)  all of the above

Question 3

The initial margin is the minimum amount of margin that investors must maintain as a percentage of the stock's value without receiving a margin call.

Accepted Answer

A) True 
 B)False

Question 4

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 shouldbepaid.

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 5

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)  B and C 
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)  B and C

Question 6

Trading halts are imposed by

Accepted Answer

A)  the SEC. 
B)  brokers. 
C)  stock exchanges. 
D)  the Treasury. 
A)  the SEC. 
B)  brokers. 
C)  stock exchanges. 
D)  the Treasury.

Question 7

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)  Corporate Finance 
B)  Enforcement 
C)  Administration 
D)  Market Regulation 
A)  Corporate Finance 
B)  Enforcement 
C)  Administration 
D)  Market Regulation

Question 8

The bid-ask spread is negatively related to

Accepted Answer

A)  order costs 
B)  inventory costs. 
C)  Risk 
D)  trading volume 
A)  order costs 
B)  inventory costs. 
C)  Risk 
D)  trading volume

Question 9

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 the above 
A)  may decrease over time. 
B)  will remain the same. 
C)  may increase over time. 
D)  none of the above

Question 10

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 11

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 brokeragefirm 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.

Question 12

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 15 percent for the day, except when the most 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 the above 
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 15 percent for the day, except when the most 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 the above

Question 13

Mark would like to purchase a stock priced at $70. The stock is not expected to pay any dividends in the coming year. Mark can either put up the entire amount and purchase the stock, or borrowhalf of the investment amount from his brokerage firm at an annual interest rate of 12 percent and put up the remainder. Mark thinks he can sell the stock for $100 after one year. If Mark borrows from his brokerage firm, his estimated return on the stock would be ____ percent.

Accepted Answer

A)  42.86 
B)  85.71 
C)  73.71 
D)  30 
A)  42.86 
B)  85.71 
C)  73.71 
D)  30

Question 14

A market order is an order to buy or sell a stock at the best possible price.

Accepted Answer

A) True 
 B)False

Question 15

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 of 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 of the stock had not been borrowed.

Question 16

____ offer advice to customers on stocks to buy or sell.

Accepted Answer

A)  Full-service brokers 
B)  Discount brokers 
C)  Floor brokers 
D)  Specialists 
E)  Market makers 
A)  Full-service brokers 
B)  Discount brokers 
C)  Floor brokers 
D)  Specialists 
E)  Market makers

Question 17

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 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 wouldhave 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

With a ____ order, the investor specifies a purchase price that is above the current market price.

Accepted Answer

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

Question 20

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

Exam 12: Market Microstructure and Strategies

Trading halts are intended to prevent insider trading.

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

The initial margin is the minimum amount of margin that investors must maintain as a percentage of the stock's value without receiving a margin call.

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 shouldbepaid.

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:

Trading halts are imposed by

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

The bid-ask spread is negatively related to

The risk of a short sale is that the stock price

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.

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

A market order is an order to buy or sell a stock at the best possible price.

Which of the following statements is incorrect?

____ offer advice to customers on stocks to buy or sell.

Short selling a stock refers to

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 wouldhave been

With a ____ order, the investor specifies a purchase price that is above the current market price.

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.

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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