Deck 6: Market Mechanics

Question 1

Orders that are to be executed as soon as possible are _____orders.

A) fair price
B) market
C) limit
D) stop

Answer 1

market

Question 2

If you have a set price below which you will buy stock, you could place a _____ order.

A) stop
B) market
C) price
D) limit

Answer 2

limit

Question 3

You buy 500 shares of RBD at $31 and wish to limit your possible loss. You could place a _____order to sell 500 RBD at $26, good till canceled.

A) stop
B) market
C) price
D) limit

Answer 3

stop

Question 4

You own shares with a substantial unrealized capital gain. You can protect the profit with a

A) market order.
B) crawling stop order.
C) loss order.
D) limit order.

Question 5

A common phrase explaining the specialist's job is to maintain a

A) continuous price.
B) fair price market.
C) legal market.
D) fair and orderly market.

Question 6

If the spread for a certain stock is too wide, the specialist is likely to enter the market on which side?

A) buy side
B) sell side
C) both the buy and the sell side
D) either the buy side or the sell side, but not both.

Question 7

You see PEP with 7s 37.5s 1/8 underneath it on the tickertape. This means

A) the stock is down since yesterday.
B) two trades occurred back to back.
C) the spread is 1/8.
D) someone is correcting an error.

Question 8

Margin accounts permit investors to

A) borrow from their brokerage firm.
B) buy round lots.
C) get leverage from their investment.
D) all of the above.

Question 9

Regulation T of the Federal Reserve Board establishes which two requirements with margin accounts?

A) initial and maintenance
B) margin and cash
C) initial and cash
D) none of the above

Question 10

A block trade is an order for _____ shares or more.

A) 100
B) 500
C) 1,000
D) 10,000

Question 11

Buying power is a measure of how much more can be spent on securities without putting up any additional cash. It equals _____minus_____ .

A) equity, debit balance
B) margin, debit balance
C) assets, liabilities
D) equity, assets

Question 12

To determine how much cash can be withdrawn from a margin account, divide _____by 2.

A) equity
B) debit balance
C) buying power
D) assets

Question 13

An investor sells short 1000 shares of IBM. This investor is _____regarding IBM stock.

A) bullish
B) bearish
C) neutral
D) conservative

Question 14

You sell 600 shares short when the stock price is $37. Later, you close out the trade at a price of $33. Your statement will show a

A) $400 gain.
B) $400 loss.
C) $2400 gain.
D) $2400 loss.

Question 15

A short sale against the box involves short selling stock

A) against market expectations.
B) in a margin account.
C) with options.
D) you already own.

Question 16

You own 600 shares of XYZ, currently trading at $20. You place a stop order to sell 300 shares at $15. You pay 10 cents per share in commission. What will your commission charge be from placing the stop order?

A) $0
B) $6.00
C) $9.00
D) $18.00

Question 17

Placing a limit order on a thinly traded stock puts you at risk of paying

A) an unfair price.
B) multiple commissions.
C) high interest.
D) a special fee.

Question 18

Stop orders can be used to_____ losses, but are especially useful in _____profits.

A) minimize, increasing
B) decrease, increasing
C) minimize, protecting
D) decrease, protecting

Question 19

The two main types of accounts someone might have with a broker are

A) cash and margin.
B) short and long.
C) discount and full service.
D) toll-free and face-to-face.

Question 20

Tom owns 100 shares of Microsoft Corp. shares, now trading at $50, and has just called his broker with a market, limit ($52), and stop ($45) sell orders. Which order will be executed first?

A) market
B) limit
C) stop
D) none will execute until the price drops below $50

Question 21

Stop orders become_____ when the stop price is reached.

A) market
B) limit
C) buy
D) cancelled

Question 22

Marie buys 100 shares of Coca Cola on Thursday. The settlement day is on:

A) Saturday
B) Sunday
C) Monday
D) Tuesday

Question 23

When a stock sells ex-dividend, limit and stop orders will be adjusted _____by _____.

A) upward; the amount of the dividend
B) upward; the amount of the annual dividend
C) downward; the amount of the annual dividend
D) downward; the amount of the dividend

Question 24

On heavy trading days the speed of the ticker tape is determined by:

A) the ability of the ticker to keep up with the market orders.
B) the ability of the ticker punchers to enter the trades on the ticker system.
C) the rate at which the average person can read the ticker.
D) the electronic delay between the floor of the exchange and TV monitors.

Question 25

Regulation T of the Federal Reserve System establishes which of the following for margin trading?

A) The maximum amount of dollar credit.
B) The percentage of the purchase that one may borrow.
C) The percentage of the purchase that the investor must put down in cash.
D) Establishes the maximum rate on the broker's call money rate.

Question 26

When buying stock on margin, interest will be calculated based on the

A) broker's call money rate.
B) broker's prime rate.
C) 3-month U.S. Treasury Bill rate.
D) short sale rate.

Question 27

Before you leave on an extended vacation, it would be wise to protect you stock investments from sizeable losses by entering

A) a market order on each stock.
B) a limit order on each stock
C) a short order on each stock
D) a stop order on each stock

Question 28

Any individual may place an order directly on the floor of the stock exchange without using a broker if he or she knows the procedures.

Question 29

The most common type of order is a market order.

Question 30

Limit orders must specify a price, quantity, and time period.

Question 31

If an investor sells using a market order, the realized price will probably be the ask price.

Question 32

A limit price away from the market means it is traded off the exchange.

Question 33

A stop order is a special type of market order.

Question 34

A crawling stop can be used to protect a profit.

Question 35

The settlement date is usually before the trade date.

Question 36

A day trade often involves only one commission.

Question 37

An order of 1,000 shares or more is a block trade.

Question 38

A margin account allows the use of leverage in buying securities.

Question 39

The base rate for margin accounts is the prime interest rate.

Question 40

At present, the initial margin requirement for common stock is 75%.

Question 41

An investor gets a margin call if their account equity falls to 50% of the portfolio value.

Question 42

Short selling necessarily involves rapid purchase and sale of securities.

Question 43

Short sellers must pay dividends to share lenders.

Question 44

A short sale against the box is usually motivated by tax considerations.

Question 45

Commissions are usually a function of the dollar amount involved and the number of shares in the trade.

Question 46

A full service brokerage firm routinely performs a function known as handholding.

Question 47

Technology and competition have driven commissions downward over the last few years.

Question 48

The "wrap"account is the investment industry's answer to falling commission costs.

Question 49

A broker earns income from trading volume when customers are under a "wrap"account.

Question 50

The NASD Central Registration Depository provides a means for a small investor to trade securities for just a small commission.

Question 51

A margin account enables an investor to leverage his/her investment into a much larger amount of securities.

Question 52

Unlike a limit order, a stop order does not specify a time limit.

Question 53

The only difference between a full-service broker and a discount broker is the amount of commission they charge.