Question 1

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 2

Program trading

Accepted Answer

A) is commonly used to reduce the susceptibility of a stock portfolio to stock market movements. 
B) may involve the purchase of stocks that become "underpriced." 
C) may involve the sale of stocks that become "overpriced." 
D) can be combined with the trading of individual bonds to create portfolio insurance. 
E) none of the above 
A) is commonly used to reduce the susceptibility of a stock portfolio to stock market movements. 
B) may involve the purchase of stocks that become "underpriced." 
C) may involve the sale of stocks that become "overpriced." 
D) can be combined with the trading of individual bonds to create portfolio insurance. 
E) none 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

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 5

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 6

____ 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 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

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

Accepted Answer

A) True 
 B)False

Question 10

____ 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

Question 11

The Division of ____ of the SEC regulates the fair and orderly disclosure trading by ensuring honest practices 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 12

Which of the following statements is incorrect?

Accepted Answer

A) Market-makers take positions to capitalize on the discrepancy between the prevailing stock price and their own valuation of a stock. 
B) Market-makers may take the opposite position of uninformed investors and therefore stand to benefit if their expectations are correct. 
C) Market makers are required to purchase the stocks they are assigned for a price existing when the market opened on any given day. 
D) The spread quoted for a given stock may vary among market-makers. 
A) Market-makers take positions to capitalize on the discrepancy between the prevailing stock price and their own valuation of a stock. 
B) Market-makers may take the opposite position of uninformed investors and therefore stand to benefit if their expectations are correct. 
C) Market makers are required to purchase the stocks they are assigned for a price existing when the market opened on any given day. 
D) The spread quoted for a given stock may vary among market-makers.

Question 13

A ____ is a trading platform on a computer web site 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

Question 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

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 18

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 19

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

Program trading

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.

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?

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

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

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

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

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

____ facilitate stock transactions by taking positions in specific stocks.

The Division of ____ of the SEC regulates the fair and orderly disclosure trading by ensuring honest practices by various organizations that facilitate the trading of securities.

Which of the following statements is incorrect?

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

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

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

Dark pools:

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

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:

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 Karen sells the stock after one year at a price of $50, what is the return on 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 and Pension Fund Operations

Filters

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