Deck 3: Securities Markets: Organization and Operation

Question 1

The basic distinction between a primary and a secondary market is

A) proceeds from sales in the primary market go to the current owner of a security; proceeds in the secondary market go to the original owner.
B) primary markets involve direct dealings within regional exchanges.
C) only new securities are sold in the primary market; only outstanding securities are bought and sold in the secondary market.
D) primary markets deal exclusively in bonds; secondary markets deal primarily in common stock.
E) None of the above.

Answer 1

C

Question 2

Non taxable bonds are sold using the following method;

A) competitive bid.
B) negotiated sale.
C) private placement.
D) All of the above
E) None of the above

Answer 2

D

Question 3

Refer to the last two questions. If the maintenance margin is 25 per cent, to what price can Jackson Industries fall before Kathy receives a margin call?

A) €21.75
B) €23.00
C) €10.67
D) €15.93
E) None of the above

Answer 3

C

Question 4

Kathy has a margin account with a balance of €60 000. Initial margin requirements are 80 per cent, and Jackson Industries is currently selling at €40 per share. How many shares of Jackson can Kathy buy?

A) 1875
B) 1500
C) 1750
D) 1200
E) None of the above

Question 5

Which of the following is not a secondary equity market?

A) Treasury market
B) National exchanges
C) Regional exchanges
D) Over-the-counter market
E) All of the above are secondary equity markets.

Question 6

Which of the following is not a function of the specialist?

A) Assists the Federal Reserve in controlling the money supply
B) Acts as a broker who handles the limit orders or special orders placed with member brokers
C) Buys and sells securities in order to stabilize the market
D) Acts as a dealer in assigned stocks to maintain a fair and orderly market
E) All of the above are functions of a specialist.

Question 7

Refer to the previous question. What is Kathy's profit if Jackson's price rises to €50?

A) €18 750
B) €15 750
C) €55 000
D) €37 750
E) €28 570

Question 8

When a market is internally efficient, it means that

A) the market has price continuity.
B) the market has minimal transactions costs.
C) the market has good depth.
D) the market has more buyers than sellers.
E) the market has more sellers than buyers.

Question 9

Refer to the previous question. What is Yvonne's profit/loss if Turtle's price after one year is €40?

A) €50 000
B) −€50 000
C) €100 000
D) −$100 000
E) None of the above

Question 10

Yvonne has a margin account with a balance of €150,000. The initial margin deposit is 60 per cent and Turtle Industries is currently selling at €50 per share. How many shares of Turtle can Yvonne purchase?

A) 5000
B) 3000
C) 1800
D) 1200
E) None of the above

Question 11

When an investor borrows part of the investment cost it is known as

A) a short sale.
B) a fill or kill order.
C) a margin transaction.
D) a limit order.
E) going long.

Question 12

Which of the following is not a major category of membership in stock exchanges?

A) specialist
B) commission broker
C) floor broker
D) financial analyst
E) registered trader

Question 13

A pure auction market is one in which

A) dealers provide liquidity by buying and selling shares of stock for themselves.
B) dealers compete against each other to provide the highest bid and lowest asking prices.
C) buyers submit bid prices to sellers.
D) sellers submit ask prices to buyers.
E) buyers and sellers submit bid and ask prices to a central location to be matched.

Question 14

A block trade is one which involves a minimum of

A) 1000 shares.
B) 5000 shares.
C) 10 000 shares.
D) 100 000 shares.
E) 1 000 000 shares.

Question 15

Which of the following statements about a market is true?

A) It is not necessary for the market to have a physical location.
B) The market does not necessarily own the goods or services involved.
C) A market can deal in any variety of goods and services.
D) All of the above
E) None of the above