Exam 3: Introduction to the Flow of Funds

Compare the trading arrangements in order-driven and quote-driven markets.

Which of the following is consistent with (or explained by)the EMH?

The process of revaluing securities on the basis of their current market value is known as:

Price movements are random when they are equally likely to rise as to fall.

Distinguish between the functions of the primary and secondary markets.

Explain the purpose and main practices of primary markets.

A dealer who wishes to reduce their holding of a particular security will set (when compared to other dealers):

Liquid markets perform the price discovery function more reliably than illiquid markets.

Under a 'best efforts' contract an investment bank handles the issue of securities but does not guarantee that they will all be sold.

Maturity transformation is achieved by a liquid secondary market.

Why might a dealer initiate a trade by accepting another dealer's quote?

Price resilience refers to the ability of a market to handle normal-sized trades without disrupting prices.

The price discovery function of markets is useful:

Bull and bear markets appear to be driven (at least partially)by investor sentiment.

The intention to sell 5000 AMP shares at not less than $5.20 each would be best achieved by:

The phenomenon of price bubbles is relatively recent.

Ratings agencies are paid by investors who are interested in the credit quality of particular securities.

It is the issuer's responsibility to keep a record of the owners of its debt securities and changes thereof.

The 'greater fool' theory of investing is an approach taken by fundamental analysts who are looking for under- and over-valued assets.

The Australian Securities Exchange regulates the issue of new securities.