Question 1

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 2

____ 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 3

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 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

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 8

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

Accepted Answer

A) True 
 B)False

Question 9

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 10

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 11

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 12

Specialists and market-makers both enhance the stock market's liquidity by making a market for stocks.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Lisa would like to purchase a stock priced at $70.The stock is not expected to pay any dividends in the coming year.She can either put up the entire amount and purchase the stock, or borrow $35 from her brokerage firm at an annual interest rate of 12 percent and put up the remainder.She thinks she can sell the stock for $100 after one year.If she borrows from her brokerage firm, her estimated return on the stock would be ____ percent.

Accepted Answer

A) 42.86 
B) 85.71 
C) 73.71 
D) 30.00 
A) 42.86 
B) 85.71 
C) 73.71 
D) 30.00

Question 15

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 16

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 17

Exhibit 12-1
Mark would like to purchase a stock priced at $70.The stock is not expected to pay any dividends in the coming year.He can either put up the entire amount and purchase the stock, or borrow $35 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.
-Refer to Exhibit 12-1.If Mark does not borrow any money from his brokerage firm, what is the estimated return on the stock?

Accepted Answer

A) 30.00 percent 
B) F1F1F1S1F1F1F1042.86 percent 
C) F1F1F1S1F1F1F1030.00 percent 
D) 42.86 percent 
E) none of the above 
A) 30.00 percent 
B) F1F1F1S1F1F1F1042.86 percent 
C) F1F1F1S1F1F1F1030.00 percent 
D) 42.86 percent 
E) none of the above

Question 18

The Division of ____ of the SEC assesses possible violations of regulations imposed by the SEC, 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 19

____ facilitate transactions on the New York Stock Exchange by taking positions in specific stocks; they also stand ready to buy or sell these stocks.

Accepted Answer

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

Question 20

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.

Exam 12: Market Microstructure and Strategies

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

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

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?

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

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

The risk of a short sale is that the stock price

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

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

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

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

Specialists and market-makers both enhance the stock market's liquidity by making a market for stocks.

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

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

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.

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

____ facilitate transactions on the New York Stock Exchange by taking positions in specific stocks; they also stand ready to buy or sell these stocks.

Short-selling a stock refers to

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 Operations

Mutual Fund Operations

Securities Operations

Insurance and Pension Fund Operations

Filters

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