Deck 2: Security Markets: Present and Future

Question 1

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

Answer 1

False

Question 2

The Cincinnati Stock Exchange is the largest of the regional stock exchanges.

Answer 2

False

Question 3

All markets must have a physical central trading location.

Answer 3

False

Question 4

The advent of the regional exchange in 1975 improved market efficiency and price competition between exchanges.

Question 5

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

Question 6

Every security traded over-the-counter has its own set of dealers and its own distribution system.

Question 7

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

Question 8

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

Question 9

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

Question 10

The rise of financial service firms through mergers and the consolidation of brokerage companies has given consumers access to better financial services.

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

NASDAQ is one of the three largest stock markets in the world.

Question 16

The Nasdaq stock market is a publicly traded corporation.

Question 17

NASDAQ ranks as the largest equity market in the world.

Question 18

During the last decade,an increasing number of new issues are being sold domestically and internationally.

Question 19

At the end of 2006,Citigroup (Smith Barney),J.P.Morgan and Deutsche Bank were three of the top ranked investment bankers in the underwriting of both global and domestic equity issues.

Question 20

A market is a way of exchanging assets.

Question 21

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 22

The Chicago Board Options Exchange is now operating 24 hours per day using a computerized trading system.

Question 23

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

Question 24

Registered traders own their own seat and are not associated with a member firm on an exchange.

Question 25

Secondary markets are for existing securities.

Question 26

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

Question 27

Primary markets are for new issues of securities.

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

A specialist is supposed to maintain an orderly market.

Question 33

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

Question 34

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

Question 35

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

Question 36

Specialists and over-the-counter dealers,sometimes called market makers,buy and sell for their own account.

Question 37

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

Question 38

A security traded on an exchange must meet listing requirements.

Question 39

The composite tape is not allowed for dual listings on regional stock exchanges.

Question 40

NASDAQ is directly related to the operations of the NYSE.

Question 41

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

Question 42

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

Question 43

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

Question 44

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

Question 45

Circuit breakers implemented by the New York Stock Exchange in 1989,stopped trading in the market for 30 minutes when the DJIA went down by 250 points or more during the day and by 60 minutes if the DJIA went down by 400 points.

Question 46

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

Question 47

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

Question 48

Rule 80A goes into effect after the Dow Jones Industrial Average has gone up or down at least 50 points in one day.

Question 49

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

Question 50

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

Question 51

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

Question 52

The biggest corporate financings in 2006 were mostly U.S.companies.

Question 53

In the NASDAQ market,the difference between the bid and asked price is the spread representing the profit the dealer earns by making a market.

Question 54

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 55

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 56

Decimalization has increased the profitability of market markers and specialists.

Question 57

When Rule 80A is in effect the market stops trading for 30 minutes

Question 58

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

Question 59

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 60

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

Question 61

According to the New York Stock Exchange,the largest holder of corporate equities in the United States is

A)Households
B)Mutual funds
C)Private pension plans
D)Life insurance companies
E)University endowment funds

Question 62

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 63

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 64

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 65

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 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

___________ 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)Commission broker

Question 68

Electronic communication systems

A)Allow investors to communicate with others in investor chat rooms
B)Allow markets to trade American Depository Receipts on-line 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 69

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 70

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 71

Which of the following are exchange-traded funds on the American Stock Exchange?

A)SPDRS
B)DIAMONDS
C)Fidelity Mutual Funds
D)A and B

Question 72

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 73

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; sub prime

Question 74

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 Board of Trade
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 75

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 76

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)If functions as a secondary market

Question 77

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 78

Which of the following is 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 79

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 80

A syndicate is formed to

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