Question 1

____ are enforced to restrict the amount of credit extended to customers by stockbrokers.

Accepted Answer

A)  Limit orders 
B)  Margin requirements 
C)  Maintenance margins 
D)  Initial margins 
A)  Limit orders 
B)  Margin requirements 
C)  Maintenance margins 
D)  Initial margins

Question 2

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 the above 
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 the above

Question 3

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 4

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, afterone 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 5

Karen just purchased a stock costing $33 on margin, paying $23 and borrowing the remainder from a brokerage firm at 15 percent annual interest. The stock pays an annual dividend of $2. If Karensells the stock after one year at a price of $50, what is the return on the stock?

Accepted Answer

A)  27.60 percent 
B)  82.61 percent 
C)  76.09 percent 
D)  58.70 percent 
E)  none of the above 
A)  27.60 percent 
B)  82.61 percent 
C)  76.09 percent 
D)  58.70 percent 
E)  none of the above

Question 6

A trading halt prevents a stock from experiencing a loss in response to news.

Accepted Answer

A) True 
 B)False

Question 7

The SEC's ____ reviews the registration statement filedwhen a firm goes public, corporate filings for annual and quarterly reports, and proxy statements that involve voting for board membersorother corporate issues.

Accepted Answer

A)  Division of Corporate Finance 
B)  Division of Market Regulation 
C)  Division of Enforcement 
D)  none of the above 
A)  Division of Corporate Finance 
B)  Division of Market Regulation 
C)  Division of Enforcement 
D)  none of the above

Question 8

When a brokerage firm demands more collateral from investors who have borrowed from the brokerage firm to buy stocks, it is making a

Accepted Answer

A)  margin call. 
B)  short sale. 
C)  proxy fight. 
D)  hedge. 
A)  margin call. 
B)  short sale. 
C)  proxy fight. 
D)  hedge.

Question 9

When investors place a limit order, they can place it for the day only.

Accepted Answer

A) True 
 B)False

Question 10

The ____ the trading volume of a stock, the ____ the spread.

Accepted Answer

A)  higher; wider 
B)  higher; narrower 
C)  lower; narrower 
D)  none of the above 
A)  higher; wider 
B)  higher; narrower 
C)  lower; narrower 
D)  none of the above

Question 11

Under the present margin requirements, at least ____ percent of an investor's invested funds must be paid in cash.

Accepted Answer

A)  20 
B)  30 
C)  40 
D)  50 
E)  none of the above 
A)  20 
B)  30 
C)  40 
D)  50 
E)  none of the above

Question 12

______________ 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 13

The Division of ____ of the SEC assesses possible violations of SEC regulations and can take action against individuals or firms.

Accepted Answer

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

Question 14

The SEC's Division of Market Regulation assesses possible violations of the SEC's regulations and can take action against individuals or firms.

Accepted Answer

A) True 
 B)False

Question 15

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 16

While an investor's ability to simultaneously consider multiple markets to accommodate its orders was perceived to allow for more competitive pricing (lower transactions costs), it also led toaform 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 17

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

Accepted Answer

A) True 
 B)False

Question 18

The size of the spread on stocks that have relatively little trading is

Accepted Answer

A)  smaller to reflect the lower degree of uncertainty. 
B)  the same as that of stocks with higher volumes of trading. 
C)  wider to reflect the higher degree of uncertainty. 
D)  not affected by trading volume. 
A)  smaller to reflect the lower degree of uncertainty. 
B)  the same as that of stocks with higher volumes of trading. 
C)  wider to reflect the higher degree of uncertainty. 
D)  not affected by trading volume.

Question 19

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 thereturn 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 20

____ may facilitate stock transactions by taking positions in specific stocks.

Accepted Answer

A)  Board members 
B)  Capstone members 
C)  Market makers 
D)  None of the above 
A)  Board members 
B)  Capstone members 
C)  Market makers 
D)  None of the above

Exam 12: Market Microstructure and Strategies

____ are enforced to restrict the amount of credit extended to customers by stockbrokers.

A short seller

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.

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, afterone year, the stock is sold at a price of $65.25 per share, the return on the stock is

Karen just purchased a stock costing $33 on margin, paying $23 and borrowing the remainder from a brokerage firm at 15 percent annual interest. The stock pays an annual dividend of $2. If Karensells the stock after one year at a price of $50, what is the return on the stock?

A trading halt prevents a stock from experiencing a loss in response to news.

The SEC's ____ reviews the registration statement filedwhen a firm goes public, corporate filings for annual and quarterly reports, and proxy statements that involve voting for board membersorother corporate issues.

When a brokerage firm demands more collateral from investors who have borrowed from the brokerage firm to buy stocks, it is making a

When investors place a limit order, they can place it for the day only.

The ____ the trading volume of a stock, the ____ the spread.

Under the present margin requirements, at least ____ percent of an investor's invested funds must be paid in cash.

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

The Division of ____ of the SEC assesses possible violations of SEC regulations and can take action against individuals or firms.

The SEC's Division of Market Regulation assesses possible violations of the SEC's regulations and can take action against individuals or firms.

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

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

The size of the spread on stocks that have relatively little trading is

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 thereturn if the investor sells the stock for $55 at the end of one year?

____ may facilitate stock transactions by taking positions in specific stocks.

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

Filters

The the trading volume of a stock, the the spread.