Question 1

The present margin requirement is that 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 2

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 3

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 brokerage firm 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 4

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 5

Under the SEC's uptick rule, speculators are prohibited from taking a short position in stocks that have experienced a decline of at least 10 percent for the day, unless the most recent trade resulted in a decrease in the stock price

Accepted Answer

A) True 
 B)False

Question 6

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

Question 7

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 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 10

A relatively high percentage (such as 3 percent) of the ratio of the number of shares sold short divided by the total number of shares outstanding 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

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 12

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 13

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 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

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

Question 18

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

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 19

Trading halts are intended to prevent insider trading.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 12: Market Microstructure and Strategies

The present margin requirement is that at least ____ percent of an investor's invested funds must be paid in cash.

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

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

Under the SEC's uptick rule, speculators are prohibited from taking a short position in stocks that have experienced a decline of at least 10 percent for the day, unless the most recent trade resulted in a decrease in the stock price

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

A criticism of dark pools is that they:

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

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

A relatively high percentage (such as 3 percent) of the ratio of the number of shares sold short divided by the total number of shares outstanding 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.

The bid-ask spread is negatively related to

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

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.

Which of the following statements is incorrect?

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

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

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.

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

Trading halts are intended to prevent insider trading.

A margin call from a broker means that the investor is required to provide more collateral (cash or stocks) or sell 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 and Pension Fund Operations

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