Newly created securities are sold in the:
a. primary market
b. secondary market
c. money market
d. capital market
a. primary market
The document which details the issuer's finances and must be provided to each buyer of the security is
called the:
a. indenture
b. prospectus
c. tombstone
d. initial public offering
b. prospectus
___________________ is a highly regulated document which details the issuers operations and finances and must be provided to each buyer of a newly issued security.
a. A prospectus
b. An underwriting agreement
c. A best efforts agreement
d. A private place
a. A prospectus
A market in which large institutional investors arrange the purchase and sale of securities among themselves
without the benefit of brokers or dealers is called a:
a. primary market
b. secondary market
c. third market
d. fourth market
d. fourth market
A market in which existing securities are traded among investors is called a:
a. primary market
b. secondary market
c. third market
d. fourth market
b. secondary market
The market for large blocks of listed stocks that operates outside the confines of the organized exchanges is
called the:
a. primary market
b. secondary market
c. third market
d. fourth market
c. third market
Sales of securities that the seller does not own is called a:
a. stop-loss order
b. short sale
c. limit order
d. maintenance margin
b. short sale
The maximum buying price or the minimum selling price specified by the investor is called a:
a. stop-loss order
b. market order
c. short sale
d. limit order
d. limit order
___________________ is the maximum purchase price or minimum selling price specified by an investor.
a. A short sale
b. A stop-loss order
c. A limit order
d. Buying on margin
c. A limit order
Brokerage firms that not only assist in trades but also have research staffs that analyze firms and make recommendations about which stocks to buy or sell are called:
a. discount brokerage firms
b. full service brokerage firms
c. investment saving firms
d
b. full service brokerage firms
A limit order, if not executed, will expire at the end of
a. the day.
b. the week.
c. the month.
d. all three (a, b, c) are possibilities
d. all three (a, b, c) are possibilities
An order to sell stock at the market price when the price of the stock falls to a specified level is called a:
a. limit order
b. market order
c. short sale
d. stop-loss order
d. stop-loss order
If the value of the securities that you borrowed money from your broker to purchase falls, you may receive a:
a. call option
b. margin call
c. limit order call
d. specialist call
b. margin call
The price for which the owner is willing to sell the security is called the:
a. bid price
b. spread
c. ask price
d. limit price
c. ask price
The advantage of buying on margin is:
a. larger potential profit
b. using more of your own money
c. deductible loss
d. non-taxable capital gain
a. larger potential profit
If an investor feels the price of a stock will decline in the future, which trade should the investor undertake?
a. market order
b. buy on margin
c. limit order
d. short sale
d. short sale
sale of securities the seller does not own
The brokers who handle the house broker's overflow are called:
a. specialists
b. registered traders
c. independent brokers
d. designated market makers
c. independent brokers
The Federal Reserve System and the New York Stock Exchange regulations currently require the short seller to have an initial margin of at least _______ of the price of the stock:
a. 10%
b. 25%
c. 30%
d. 50%
e. they do not require the short seller to have
d. 50%
An over-the-counter market trade occurs in the:
a. DJIA
b. NYSE
c. NASDAQ
d. SEC
c. NASDAQ
A trade in the multiple of 100 shares is called a (n):
a. round lot
b. odd lot
c. block trade
d. margin trade
a. round lot
Which of the following statements is correct?
a. Because global depository receipts are listed on the London Stock Exchange, U.S. investors cannot buy GDRs through a broker in the United States.
b. Foreign stocks can be traded in the United States if they
b. Foreign stocks can be traded in the United States if they are registered with the Securities and Exchange
Commission.
Secondary markets are where
a. existing securities are traded among investors
b. securities are initially sold
c. debt securities with maturities of one year or less are issued and traded
d. debt securities with maturities longer than one year and equity
a. existing securities are traded among investors
Which one of the following is not a primary market function of investment bankers?
a. originating
b. underwriting
c. selling
d. making loans
d. making loans
A market has ________ if it can absorb large orders without disrupting prices; it has ___________ if it has many trades.
a. depth, breadth
b. breadth, depth
c. liquidity, quick execution
d. quick execution, liquidity
a. depth, breadth
depth: can absorb large orders without disrupting prices
breadth: attracts many traders ? many trades
Which of the following is not a characteristic of a good market?
a. central location
b. quick and accurate trade execution
c. low cost of trading
d. all of the above are characteristics of a good market
a. central location
A good market has the following characteristics:
a. trades are executed quickly at a price close to fair market value
b. market prices fluctuate sharply on successive trades
c. listing requirements are unreasonable
d. fees are high
a. trades are executed quickly at a price close to fair market value
A firm may decide to list its shares on another exchange besides the NYSE because
a. costs are lower.
b. listing requirements are easier to satisfy.
c. investors can get faster trade execution in another exchange.
d. all of the above.
d. all of the above.
If a market has "price pressure" this is a sign of
a. good liquidity in the market.
b. low liquidity in the market.
c. high listing fees.
d. high brokerage commissions
b. low liquidity in the market
this is another hidden cost, it indicates the market lacks good liquidity
An agreement whereby an investment banker tries to sell securities of an issuing corporation, but assumes no risk if the flotation is unsuccessful is called a:
a. due diligence agreement
b. best-effort agreement
c. firm commitment price agreement
d. shelf
b. best-effort agreement
Which one of the following is not a cost to the issuing firm of going public with an initial stock offering?
a. direct costs (legal fees, accounting fees, etc.)
b. underwriter's spread
c. overpricing
d. underpricing
c. overpricing
underpricing is a cost
The regulation of new security sales by individual states is referred to as:
a. the registration process
b. a truth-in-securities requirement
c. the rating of security quality
d. Blue-sky laws
d. Blue-sky laws
they protect investors from fraudulent security offerings, state laws differ
Commercial banks were for many years prohibited from full-fledged investment banking by the:
a. Glass-Steagall Act
b. Garn-St. Germain Depository Institutions Act
c. Dodd-Frank Wall Street Reform and Consumer Protection Act
d. National Association of Secu
a. Glass-Steagall Act
Which of the following is not a basic type of member of the New York Stock Exchange?
a. independent brokers
b. floor brokers
c. registered traders
d. designated market makers
e. security regulators
e. security regulators
Security regulators are not part of the NYSE, they work for the government
An order for immediate purchase or sale at the best possible price is called a:
a. market order
b. limit order
c. stop loss order
d. margin order
a. market order
Which of the following securities issues do not usually require competitive bidding?
a. state government bond issues
b. local government bond issues
c. Federal government bond issues
d. corporate bond issues
d. corporate bond issues
Which of the following is not an advantage of shelf registration?
a. saving time on issuing securities
b. allows issuer to determine which investment bank offers the best service
c. eliminates filing fees
d. all three (a, b, c) are advantages of shelf reg
c. eliminates filing fees
Under a ______________, if any additional shares of common stock, or any security that may be converted into common stock, are to be issued, the securities must be offered for sale first to the existing common
stockholders.
a. private placement
b. pre-emp
b. pre-emptive rights offering
The flotation costs of an IPO depend on
a. the size of the offering
b. the issuing firm's earnings
c. the condition of the stock market
d. all three (a, b, c)
e. none of the three (a, b, c)
d. all three (a, b, c)
Investment banks engage in the following activities:
a. underwrite corporate securities
b. buy and sell commercial paper
c. mergers and acquisitions
d. all three (a, b, c)
e. none of the three (a, b, c)
d. all three (a, b, c)
A private placement is:
a. a bidding process which allows smaller firms and individual investors to purchase securities
b. a group of several investment banking firms that participate in underwriting and distributing a security issue
c. the sale of securi
c. the sale of securities to a small group of private investors
The purpose of pre-emptive rights is to allow shareholders to:
a. buy enough of a new securities offering to maintain their present proportional share of ownership
b. buy an unlimited amount of the new issue at a discount
c. pre-empt other stockholders fr
a. buy enough of a new securities offering to maintain their present proportional share of ownership
A syndicate is:
a. a firm that assists in specialist transactions
b. a group of several investment banking firms that participate in the underwriting and distributing of a security issue
c. the largest group of members on the NYSE
d. composed of direct co
b. a group of several investment banking firms that participate in the underwriting and distributing of a security issue
Market stabilization is:
a. disallowed under the Securities Act of 1934
b. the intervention of the syndicate to buy back securities to prevent a larger price drop
c. prohibited by the Securities Exchange Commission
d. the announcement of securities offeri
b. the intervention of the syndicate to buy back securities to prevent a larger price drop
The process whereby an underwriting syndicate steps in to buy back securities to prevent a larger price drop than that which has already occurred is called:
a. market stabilization
b. price normalization
c. dollar cost averaging
d. a Dutch auction
a. market stabilization
The lead investment banker:
a. is elected by members of the syndicate
b. is appointed by the SEC
c. originates and handles a flotation
d. is typically the Fed
c. originates and handles a flotation
The syndicate dissolves:
a. when members elect to do so
b. 30 days after securities issue
c. when the lead investment banker decides to do so
d. the syndicate never dissolves
c. when the lead investment banker decides to do so
Which of the following activities is not an activity of registered traders?
a. buy and sell stocks for their own accounts
b. pay no commissions
c. match up buy and sell orders
d. all the above
c. match up buy and sell orders
Floor brokers include:
a. house brokers
b. independent brokers
c. designated market makers
d. all the above (a, b, and c)
e. both a and b
e. both a and b
designated market makers are one of 3 types of members of NYSE but not a floor broker
A stop-loss order:
a. sets a price a broker may not violate
b. stops losses for one trading day
c. is executed at the market price when the price of the stock falls to a specified level
d. stops losses for 30 days
c. is executed at the market price when the price of the stock falls to a specified level
If you buy stock certificates and keep them at the brokerage firm rather than taking personal possession of
them, your stock is in:
a. street name
b. a short sale
c. a limit order
d. a round lot
a. street name
If the initial margin requirement is 50% and you have $5,000 in your brokerage account, you may purchase a total of __________ worth of securities on margin. (Pick the closest answer.)
a. $2,000
b. $2,500
c. $10,000
d. $12,500
c. $10,000
$5,000 = (0.50)(TOTAL) ? ?????????? = ($??,?????? / ??.????) = $????, ????
Over-the-counter (OTC) trades must take place:
a. on the floor of the New York Stock Exchange
b. on the floor of the American Stock Exchange
c. on the floor of the NASDAQ Stock Exchange
d. none of the above
d. none of the above
OTC is a telecommunications network linking brokers and dealers to trade OTC stocks
Arbitrage refers to:
a. selling securities you don't own
b. buying and selling stocks with offsetting trades to lock in profits from price differences between different
markets
c. buying IPO's
d. selling IPO's
b. buying and selling stocks with offsetting trades to lock in profits from price differences between different markets
arbitrage involves the simultaneous buying and selling of a security to make a profit
The aftermarket is:
a. the over-the-counter market
b. the foreign exchange market
c. the period after a new issue is initially sold to the public
d. the difference between the offer price and the price paid by the investment bank
c. the period after a new issue is initially sold to the public
___________________ is when an investor borrows money and invests the borrowed funds along with his or her own funds in securities.
a. A short sale
b. A stop-loss order
c. A limit order
d. Buying on margin
d. Buying on margin
___________________ is an order to sell stock at the market price when the price of the stock falls to a specified level.
a. A short sale
b. A stop-loss order
c. A limit order
d. Buying on margin
b. A stop-loss order
__________________ is a technique for trading stocks as a group rather than individually, defined as a minimum of at least 15 different stocks with a maximum value of $1 million.
a. A short sale
b. A stop-loss order
c. Margin trading
d. Program trading
d. Program trading
A receipt that represents foreign shares owned and traded by U.S. investors is called a (n):
a. global depository receipt
b. American depository receipt
c. representative depository receipt
d. Asian depository receipt
e. Foreign depository receipt
f. Euro
b. American depository receipt
___________________ is an agreement by the investment banker to sell securities of the issuing corporation whereby the investment banker assumes no risk for the possible failure of the flotation.
a. A prospectus
b. An underwriting agreement
c. A best-effo
c. A best-effort agreement
__________________ are comprised of direct costs, the spread, and underpricing.
a. Commission costs
b. Flotation costs
c. Brokerage commissions
d. SEC fees
b. Flotation costs
Federal regulation of investment banking is administered primarily under the provisions of the
___________________.
a. Investment Banking Act
b. Garn-St. Germain Act
c. Securities Act
d. Federal Reserve Act
c. Securities Act
In reality, an option's value will equal its intrinsic value only at expiration. At all other times, the option's
premium or price will exceed its intrinsic value. A major reason for this is _____________.
a. marketability
b. price
c. trade restrictions
d
d. time
the longer the time to expiration the more likely it will become profitable to exercise the option
In reality, an option's value will equal its intrinsic value only at expiration. At all other times, the option's premium or price will exceed its intrinsic value. A major reason for this is _____________.
a. marketability
b. price
c. trade restrictions
d
e. none of the above
The ________________________, the greater the chance of the option becoming _____________________.
a. shorter the time to expiration, in-the-money
b. longer the time to expiration, in-the-money
c. less the volatility, in-the-money
d. two of the above are
b. longer the time to expiration, in-the-money
the more time to expiration, the greater the chances the fluctuations in the asset's price will make the option profitable (in-the-money)
The ________________________, the greater the chance of the option becoming _____________________.
a. shorter the time to expiration, in-the-money
b. longer the time to expiration, out-of-the-money
c. less the volatility, in-the-money
d. two of the above
e. none of the above
the more time to expiration, the greater the chances the fluctuations in the asset's price the more time to expiration, the greater the chances the fluctuations in the asset's price
If a Microsoft January call option with a strike price of $20 were about to expire and the market price of the
underlying Microsoft stock was $25.62, the premium of the call option would have to be __________ or higher
to eliminate arbitrage opportunities
b. $5.62
If a Microsoft January call option with a strike price of $20 had a premium of $2.00 and the market price of the underlying Microsoft stock was $25.62, the call option would be _______________.
a. in-the-money
b. out-of-the-money
c. at-the-money
d. not en
a. in-the-money
option with a positive intrinsic value (can profit by exercising the call)
If a Microsoft January call option had a strike price of $20 and the market price of the underlying Microsoft
stock was $25.62, the call option would be _______________.
a. in-the-money
b. out-of-the-money
c. at-the-money
d. not enough information to tell
d. not enough information to tell
If a Microsoft January put option had a strike price of $20 and the market price of the underlying Microsoft
stock was $15.00, the put option would be _______________.
a. in-the-money
b. out-of-the-money
c. at-the-money
d. not enough information to tell
d. not enough information to tell
If a Microsoft January put option with a strike price of $20 had a premium of $5.00 and the market price of
the underlying Microsoft stock was $10.00, the put option would be _______________.
a. in-the-money
b. out-of-the-money
c. at-the-money
d. not enou
a. in-the-money
you profit by exercising the option
If a Microsoft January put option with a strike price of $20 had a premium $5.00 and the market price of the
underlying Microsoft stock was $23.00, the put option would be _______________.
a. in-the-money
b. out-of-the-money
c. at-the-money
d. not enough
b. out-of-the-money
you lose money by exercising the option
If a Microsoft January put option with a strike price of $20 were about to expire and the market price of the
underlying Microsoft stock was $15.00, the premium of the put option would have to be __________ or higher
to eliminate arbitrage opportunities.
e. $5.00
arbitrage ? make a profit with no risk, simultaneously buy low sell high, put option is the right to sell the stock at the strike price of $20 and stock costs $15 ? $20 - $15 = $5 ? premium of put option ? $5 to eliminate arbitrage
The seller of an option contract is called a (n) ____________ and the price paid for the option itself is the
called the ___________.
a. option broker, option price
b. sales agent, option premium
c. option writer, option premium
d. option writer, option p
c. option writer, option premium
The seller of an option contract is called a (n) ____________ and the price paid for the option itself is the
called the ___________.
a. option broker, option price
b. sales agent, call option
c. sales agent, option premium
d. option writer, option price
e. none of the above.
Exchange-traded options are liquid because they are standardized in terms of:
a. expiration dates
b. exercise prices
c. quantity of the underlying asset
d. quality of the underlying asset
e. all of the above
e. all of the above
Exchange-traded options are liquid because they are standardized in terms of:
a. diversity in the location of the underlying assets
b. diversity of the underlying assets
c. diversity of the timing of the underlying assets
d. all three (a, b, and c)
e. non
e. none of the three (a, b, and c)
While the Chicago Board Options Exchange remains the main market for exchange traded options, the
______________ exchange also deals in option contracts.
a. New York
b. American
c. Pacific
d. Philadelphia
e. all of the above
e. all of the above
While the Chicago Board Options Exchange remains the main market for exchange traded options, the
______________ exchange also deals in option contracts.
a. Miami
b. Indianapolis
c. San Francisco
d. all three (a, b, and c)
e. none of the three (a, b, and
e. none of the three (a, b, and c)
A contract that obligates the owner to purchase or sell the underlying asset at a specified price on a specified day is called a
a. put option contract
b. call option contract
c. futures contract
d. money market contract.
c. futures contract
Futures contracts are traded on all of the following EXCEPT
a. agricultural goods
b. currencies
c. oil
d. interest rates
e. the winner of the Super Bowl
e. the winner of the Super Bowl
Hedging is similar to the concept of ________________.
a. gambling
b. juggling
c. hiding
d. insurance
d. insurance
protects investors from large adverse price fluctuations in the value of an asset
A security whose value is determined by the value of another investment vehicle is referred to as a (n)
a. underlying security
b. derivative security
c. debenture security
d. at-the-money security.
b. derivative security
_____________ is when a broker constantly buys and sells securities from a client's portfolio in an effort to
generate commissions.
a. Blending
b. Flipping
c. Swapping
d. Churning
d. Churning
The capital markets are successful in allocating capital because of their
a. integrity
b. size
c. location in New York
d. large number of employees
a. integrity
Insider trading laws regulate the behavior of
a. corporate officers only
b. investment bankers only
c. anyone with nonpublic information about a firm
d. anyone with public information about a firm
c. anyone with nonpublic information about a firm
A contract that gives the owner the choice of selling a particular good at a specified price on or before a
specified date is called a (n):
a. call option
b. put option
c. futures contract
d. derivative option
b. put option
selling
A contract that gives the owner the choice of buying a particular good at a specified price on or before a
specified date is called a (n):
a. call option
b. put option
c. futures contract
d. derivative option
a. call option
buying