Deck 3: Stocks

Question 1

Boni holds some YBM stocks in what's called the "street name," which enables her broker to short her stocks.Her broker Brokerman helps Chini borrow those shares and short-sell them to Honey Bunny at $100 per share.When YBM declares a $1 dividend,then:

A) YBM pays $1 to Boni
B) YBM pays $1 to Chini,who passes it on to Boni
C) Brokerman pays $1 to Boni from his own money
D) Chini pays $1 to Boni
E) Honey Bunny pays $1 to Boni

Answer 1

D

Question 2

Which statement below is INCORRECT about block trades?

A) They involve trades of 5,000 shares or more.
B) They involve trades of 10,000 shares or more.
C) They are often negotiated away from the trading floor in the "upstairs market."
D) They may or may not involve the services of a broker.
E) They are rarely handled by the specialists.

Answer 2

A

Question 3

Which of the following statements about self-regulation of exchange-traded securities markets is INCORRECT?

A) It makes the markets more honest.
B) It helps demonstrate to the federal agencies that the industry is doing a good job policing itself and thus more regulatory oversight may not be necessary.
C) It deals with problems before they get wide publicity.
D) It builds the reputation of the marketplace and thus attracts high-quality customers and greater trade volume.
E) Its net costs are far more than the benefits it provides.

Answer 3

E

Question 4

Which of the following is NOT true about an electronic communications network (ECN)?

A) It is an alternate trading system that must be registered with the SEC as a broker-dealer.
B) Its participants include institutional investors,broker-dealers,and market makers.
C) It publicly displays the limit order book to subscribers.
D) It is primarily a trading venue for stocks and currencies.
E) It is a secretive trading network that does not send an order directly to an exchange or display it in a limit order book.

Question 5

US stock exchanges are:

A) regulated by the CFTC
B) regulated by the Congress
C) regulated by the Federal Reserve Bank
D) regulated by the EPA
E) regulated by the SEC

Question 6

Which statement below is correct about the Financial Industry Regulatory Authority (FINRA)?

A) FINRA is the successor to NASDAQ.
B) FINRA was created as a regulator of the stock market during the 1930s.
C) FINRA is the new name for NASD.
D) NASD and the member regulation,enforcement,and arbitration functions of the New York Stock Exchange were consolidated to form FINRA.
E) FINRA operates the NASDAQ Stock Market LLC.

Question 7

Consider an asset that has a continuously compounded dividend yield of $\delta$ = 0.03 per year,which is reinvested back into the asset.Then,a unit investment in the asset today grows after ten months to:

A) 1.0202 units
B) 1.0228 units
C) 1.0253 units
D) 1.0279 units
E) None of these answers are correct.

Question 8

The foreign exchange market is one of the world's largest:

A) exchanges
B) primary markets
C) auction markets
D) dark pools
E) over-the-counter markets

Question 9

The following individuals do not trade in the derivative securities markets:

A) day traders
B) market makers
C) position traders
D) scalpers
E) specialists

Question 10

A stock's price cum-dividend is $50.If the market is free of riskless profit opportunities,then the ex-dividend price of the stock after the payment of a $1 dividend would be:

A) $48
B) $49
C) $50
D) $51
E) None of these answers are correct.

Question 11

Which statement below is INCORRECT?

A) Arbitrageurs seek price discrepancies among securities and attempt to extract riskless arbitrage profits.
B) Hedgers try to reduce risk by trading securities and are often cited as the chief reason for the existence of derivative markets.
C) Position traders (also called trend followers)maintain speculative trading positions for longer periods of time.
D) Scalpers open their positions in the morning,try to profit from price movements over the day,and close their positions at the end of the trading day.
E) Speculators often take calculated risks in their pursuit of profits.

Question 12

Traders with superior information are more likely to trade in the:

A) stock market
B) bond market
C) money market
D) options market
E) swaps market

Question 13

Consider the following data: YBM's stock price is $110.The initial margin is 50 percent and the maintenance margin is 25 percent.If you buy 150 shares,borrowing 50 percent from the broker,at what stock price will you start to receive a margin call? (Hint: use the formula Margin= (Market value of assets - Loan)/ Market value of assets. )

A) $25
B) $55.25
C) $66.67
D) $73.33
E) None of these answers are correct.

Question 14

Which of the following is NOT true about a dealer?

A) A dealer has inventory risk.
B) A dealer matches a buyer and a seller and earns commissions for this service.
C) A dealer posts bid and ask prices.
D) A dealer must have adequate capital to maintain her portfolio of securities.
E) A dealer trades on her own account.

Question 15

Which of the following is NOT true about a spread in a financial market?

A) A spread may refer to the gap between bid and ask prices of a stock or other security.
B) A spread may refer to the simultaneous purchase and sale of separate futures or options contracts for the same commodity for delivery in different months.
C) A spread may refer to the difference between the price at which an underwriter buys an issue from a firm and the price at which the underwriter sells it to the public.
D) A spread may refer to the difference between the price that someone purchasing an item in an auction pays and the price that the seller receives.
E) A spread may refer to the price an issuer pays above a benchmark fixed-income yield to borrow money.

Question 16

You are a dealer and post a price of $100.00 to $100.50 for a stock.There are more sell orders than buy orders and you find your inventory is growing.What is the correct way to adjust your quotes?

A) Lower the bid price and then lower the ask price.
B) Lower the ask price and then lower the bid price.
C) Raise the ask price and then raise the bid price.
D) Raise the bid price and then raise the ask price.
E) Do nothing-orders arrive randomly and they will self-adjust.

Question 17

Suppose that a stock trader has bought $20,000 worth of securities.He kept $10,000 in an initial margin in his brokerage account and borrowed the rest from his broker.The maintenance margin is 25 percent.The value of the account has fallen to $3,500.The account holder has to come up with a variation margin of:

A) $1,000
B) $1,500
C) $3,500
D) $6,500
E) None of these answers are correct.

Question 18

The primary market for a stock is:

A) an initial public offering
B) an auction
C) a private placement
D) a subscription offering
E) None of these answers are correct.

Question 19

Which of the following is NOT true about stockholders?

A) A stockholder has fractional ownership over a company.
B) A stockholder usually gets dividend payments from a company.
C) A stockholder can lose more than her initial investment because the company is a "legal person" and must meet its debts and legal obligations.
D) A stockholder can play a role in changing the top management of the company.
E) A stockholder cannot be sued for misdeeds of a company.