Deck 2: Security Markets

Question 1

The rise of financial-service firms through mergers and the consolidation of brokerage companies have resulted from significant changes in the banking laws.

Answer 1

True
Explanation: These mergers and acquisitions were made possible by changes to the banking laws, allowing financial institutions to offer the full financial services of commercial banking, investment banking, insurance, and brokerage firms.

Question 2

A market is a way of exchanging assets.

Answer 2

True
Explanation: A market is a way of exchanging assets, usually cash.

Question 3

Deregulation of financial institutions and mergers has created a more competitive environment for retail brokerage houses.

Answer 3

True
Explanation: Financial institutions may now offer the full financial services of commercial banking, insurance, and brokerage firms after passage of the Graham- Leach-Bliley Act of 1999.

Question 4

The NASDAQ stock market is a publicly traded corporation.

Question 5

In the distribution of corporate bond issues, private placements to large insurance companies dominate the volume of public offerings.

Question 6

At the end of 2009, Citigroup (Smith Barney), JPMorgan, and Barclay's Capital were three of the top ranked investment bankers in the underwriting of both global and domestic equity issues.

Question 7

Primary markets are for new issues of securities.

Question 8

When an investment bank sells securities on a best efforts basis, it assumes all risk of the offering.

Question 9

The Chicago Stock Exchange is the only one of the regional stock exchanges still viable.

Question 10

The regional exchange plays an important part in the trading markets.

Question 11

Bringing private companies public for the first time is called an initial public offering.

Question 12

International competition from world markets has had very little effect on U.S. exchanges.

Question 13

NASDAQ ranks as the largest equity market in the world.

Question 14

During the last decade, the financial markets have changed at a rapid pace.

Question 15

The American Stock Exchange's main competitor in the options and futures markets is the New York Stock Exchange.

Question 16

A shelf registration enables an investment banker to sell a small portion of an issue without forming a syndicate.

Question 17

Stocks traded over-the-counter, like through NASDAQ, have no centrally located market location.

Question 18

All markets must have a physical central trading location.

Question 19

One characteristic of efficient markets is that prices adjust rapidly to new information.

Question 20

Efficient markets need not be liquid, as long as buyers and sellers can eventually get a fair price for the assets they trade.

Question 21

A security traded on an exchange must meet listing requirements.

Question 22

Secondary markets include only organized exchanges such as the NYSE and the regional exchanges.

Question 23

Under the Securities Act of 1933, the SEC can certify that a stock is fairly priced.

Question 24

NASDAQ is directly related to the operations of the NYSE.

Question 25

According to insider trading rules of the SEC, securities analysts and financial writers may not trade on insider information, but these rules do not extend to relatives and friends.

Question 26

Floor brokers act as agents for clients and execute buy and sell orders on the floor of the NYSE exchange.

Question 27

Based on dollar volume of stocks and bonds, the NASDAQ is the second largest of all markets in the United States.

Question 28

Specialists are now able to keep their limit orders in the Electronic Book rather than the old manual "specialist's book."

Question 29

The major functions of an investment banker are performed as part of the operations of the secondary market.

Question 30

As a part of Super Dot, specialists are informed through Opening Automated Report Service (OARS) of market orders received before the opening bell.

Question 31

Specialists buy and sell for their own account.

Question 32

The investment banker assumes a price risk under a best efforts agreement.

Question 33

Only the Chicago regional exchange is still viable, with Philadelphia and Boston being bought by NASDAQ.

Question 34

The Intercontinental Exchange (ICE) is now operating 24 hours per day using a computerized trading system.

Question 35

When investment bankers underwrite a security, they usually guarantee purchase of the securities at a fixed price for the selling firm.

Question 36

A specialist is supposed to maintain an orderly market.

Question 37

Super Dot refers to the New York Stock Exchange's designated order transfer system, which allows NYSE member firms to electronically transmit all market and limit orders directly to the specialist at the trading post.

Question 38

Secondary markets are for existing securities.

Question 39

The use of the NASDAQ Automated Quotation System has increased the number of equity trades on the American Stock Exchange.

Question 40

The U.S. treasury often uses investment bankers to sell new issues of government securities.

Question 41

Creating prices for securities and allowing for liquidity are functions of:

A)the primary market.
B)the secondary market.
C)the third market.
D)the fourth market.
E)the real estate market.

Question 42

The Gramm-Leach-Bliley Act repealed the Glass-Steagall Act, which restricted commercial banks from also being in the investment banking business.

Question 43

Program trading decreases market efficiency by exaggerating price discrepancies between the cash and futures markets.

Question 44

A means of exchanging assets, which may or may not include a specified location, and in which the seller may or may not own the assets being sold, is called:

A)an organized exchange.
B)an options market.
C)a market.
D)None of the above

Question 45

The investment banker acts as a middleman in the process of raising new funds for corporations and governments.

Question 46

Which of the following best describes the function of an investment banker selling an issue on a "best efforts" basis?

A)Return unsold securities to the firm
B)Create a market for the securities
C)Guarantee a continuous liquid market
D)Private placements to financial institutions
E)More than one of the above

Question 47

Program trading simply means that trades are executed on computer programs written by the SEC.

Question 48

One of the main reasons institutional investors like ECNs is that they allow anonymity in trading.

Question 49

Electronic communication networks (ECNs) automatically match buy and sell orders at specified prices, and orders are not routed to the floor of an exchange before processing.

Question 50

Underwriters are less concerned with the fees from their activities than simply the amount of dollars underwritten.

Question 51

Circuit breakers will shut down the market for a period of time if a dramatic drop in stock prices occurs.

Question 52

There is concern by the SEC and Congress that dark pools create a two-tier market.

Question 53

The largest segment of the Over-the-Counter (OTC) Market, in terms of dollar volume, is the U.S. government securities markets.

Question 54

In the __________ market, existing assets are exchanged between investors, while in the ___________ market, participants buy their assets directly from the source of the asset.

A)primary; secondary
B)secondary; primary
C)tertiary; primary
D)primary; OTC
E)prime; subprime

Question 55

In the NASDAQ market, it is now permitted to charge fees for data feeds and market information.

Question 56

Many large technology companies listed on NASDAQ could easily meet the NYSE listing standards.

Question 57

Because of the 1987 market collapse, the SEC put circuit breakers into effect.

Question 58

If the DJIA declines by 10% in the time between 2:00-2:30 PM, a 30 minute halt to trading occurs.

Question 59

Shelf registration is more popular with new bond offerings than with new stock offerings.

Question 60

The cost of compliance with the Sarbanes-Oxley Act has had little effect on the willingness of foreign companies to list their shares on U.S. stock exchanges.

Question 61

Bringing private companies public for the first time is called:

A)a private placement.
B)an initial public offering (IPO).
C)a secondary offering.
D)a founders sale.
E)a shelf registration.

Question 62

Electronic communication systems:

A)allow investors to communicate with others in investor chat rooms.
B)allow markets to trade American Depository Receipts online in Europe and Asia.
C)automatically match buy and sell orders at specified prices.
D)are operated by the investment bankers to stabilize new issue markets.

Question 63

An employee of an investment house who executes orders on the floor of the exchange for customers of the firm is called a:

A)floor broker.
B)registered trader.
C)commission broker.
D)specialist.
E)dealer.

Question 64

The Securities Investor Protection Corporation (SIPC) was established to:

A)oversee the liquidation of brokerage firms, and insure an investor's accounts to a maximum value of $500,000 in case of bankruptcy by the broker.
B)protect investors from corporate insider trading, and insure their accounts for $500,000 in case corporate fraud caused a company to go bankrupt.
C)cover the total market loss on an investor's brokerage account in case of the bankruptcy of the broker.
D)create an insurance pool for brokerage firms, so that if one firm went bankrupt, all investor losses would be covered out of the insurance pool.

Question 65

From the investment banker's point of view, the major reason syndicates are formed in the distribution of large issues is for the purpose of:

A)improving the liquidity of the issue.
B)improving geographic distribution.
C)reducing the underwriter's risk.
D)improving brand recognition.
E)All of the above

Question 66

The process of selling a new issue of securities so that the price is guaranteed to the selling firm is referred to as:

A)underwriting.
B)best efforts.
C)direct by issuer.
D)shelf registration.
E)All of the above involve a price guarantee

Question 67

Which of the following is true of over-the-counter markets?

A)Trading takes place by telephone or electronic network
B)It is regulated by the Securities and Exchange Commission and the National Association of Securities Dealers
C)The total securities traded represent the largest dollar volume in the U.S.
D)All of the above are true

Question 68

The exchange with the largest dollar volume in major companies and which has the most restrictive listing requirements is:

A)the New York Stock Exchange.
B)the American Exchange.
C)the NASDAQ Stock Market.
D)the Securities Exchange.

Question 69

The least popular form of distributing corporate securities is:

A)underwriting.
B)best efforts.
C)firm commitment.
D)syndicated offering.
E)direct by issuer.

Question 70

ECNs provide several advantages to investors. Which of the following is not an advantage?

A)They lower the cost of trading compared to organized exchanges with floor trading
B)They let everyone know who is making the trade and at what price
C)They provide the ability to trade after hours when the exchanges are closed
D)They provide more price transparency than organized exchanges

Question 71

The Securities and Exchange Commission was created by the:

A)Securities Act of 1933.
B)Securities Exchange Act of 1934.
C)Investment Advisor Act of 1940.
D)None of the above

Question 72

Program trading

A)means that when a given market indicator reaches a certain point, a large sale or purchase of securities may take place.
B)has been argued to affect the market by accelerating price movements.
C)is likely to be voluntarily restricted by the securities exchanges and their member firms.
D)All of the above

Question 73

A syndicate is formed to:

A)share the risk between investment bankers.
B)distribute securities to a wide group of investors.
C)improve the liquidity/marketability of an offering.
D)All of the above

Question 74

A person who is registered to trade on an exchange, who owns a seat but is not an employee of any member firm is a:

A)commission broker.
B)floor broker.
C)registered trader.
D)dealer.
E)B and C

Question 75

The __________ is a futures market for common stock, while the ____________ is a futures market for commodities and financial instruments.

A)Chicago Board Options Exchange; Chicago Mercantile Exchange
B)Chicago Mercantile Exchange; Chicago Board Options Exchange
C)Chicago Board of Trade; Chicago Board Options Exchange
D)New York Stock Exchange; American Stock Exchange

Question 76

Dual trading creates the following benefit:

A)it improves liquidity of a security.
B)it allows securities to be traded domestically and internationally.
C)it creates competition between the exchange and NASDAQ.
D)All of the above are benefits of dual trading

Question 77

___________ has two major functions: to handle special orders, such as purchases with a price contingency, and to maintain continuous, liquid, orderly markets.

A)A registered trader
B)A specialist
C)An odd-lot dealer
D)A commission broker

Question 78

The major exchange for warrants, options, and commodity futures is the:

A)American Stock Exchange.
B)New York Stock Exchange.
C)NASDAQ.
D)None of the above

Question 79

Which of the following is NOT a characteristic of an organized exchange?

A)It functions as a primary market
B)Securities are bought and sold in an auction market by brokers acting as agents for buyers and sellers in a central location
C)It may be either national or regional
D)It has a central location where all trading takes place
E)It functions as a secondary market

Question 80

Full disclosure of all pertinent investment information in the sale of new securities is a provision of the:

A)Securities Act of 1933.
B)Securities Exchange Act of 1934.
C)Securities Acts Amendments of 1975.
D)Sarbanes-Oxley Act of 2002.
E)More than one of the above