Newly created securities are sold in the:
a. Primary market
The document which details the issuer's finances and must be provided to each buyer of the security is
called the:
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
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:
d. fourth market
. A market in which existing securities are traded among investors is called a:
b. secondary market
The market for large blocks of listed stocks that operates outside the confines of the organized exchanges is
called the:
c. third market
Sales of securities that the seller does not own is called a:
b. short sale
The maximum buying price or the minimum selling price specified by the investor is called a:
d. limit order
___________________ is the maximum purchase price or minimum selling price specified by an investor.
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:
b. full service brokerage firms
A limit order, if not executed, will expire at the end of
d. all three
**the day, the week, the month.
An order to sell stock at the market price when the price of the stock falls to a specified level is called a:
d. stop-loss order
If the value of the securities that you borrowed money from your broker to purchase falls, you may receive a:
b. margin call
The price for which the owner is willing to sell the security is called the:
c. ask price
The advantage of buying on margin is:
a. larger potential profit
If an investor feels the price of a stock will decline in the future, which trade should the investor undertake?
d. short sale
The brokers who handle the house broker's overflow are called:
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:
e. they do not require the short seller to have any initial margin
An over-the-counter market trade occurs in the:
c. NASDAQ
A trade in the multiple of 100 shares is called a (n):
a. round lot
Which of the following statements is correct?
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
Which one of the following is not a primary market function of investment bankers?
d. making loans
**primary market: original issue market in which securities are initially sold
A market has ________ if it can absorb large orders without disrupting prices; it has ___________ if it has
many trades.
a. depth, breadth
****depth: can absorb large orders without disrupting prices
breath: attracts many traders ? many trades
Which of the following is not a characteristic 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
A firm may decide to list its shares on another exchange besides the NYSE because
d. all of the above
**costs are lower, listing requirements are easier to satisfy, investors can get faster trade execution in another exchange
If a market has "price pressure" this is a sign of
b. low liquidity in the market.
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:
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?
c. overpricing
**underpricing is a cost
The regulation of new security sales by individual states is referred to as:
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
Which of the following is not a basic type of member of the New York Stock Exchange?
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
Which of the following securities issues do not usually require competitive bidding?
d. corporate bond issues
Which of the following is not an advantage of shelf registration?
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.
b. pre-emptive rights offering
The flotation costs of an IPO depend on
the size of the offering, the issuing firm's earnings, the condition of the stock market
d. all three (a, b, c)
Investment banks engage in the following activities:
d. all three (a, b, c)
**mergers and acquisitions, buy and sell commercial paper, underwrite corporate securities
A private placement is:
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
A syndicate is:
b. a group of several investment banking firms that participate in the underwriting and distributing of a
security issue
. Market stabilization is:
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
The lead investment banker:
c. originates and handles a flotation
The syndicate dissolves:
c. when the lead investment banker decides to do so
Which of the following activities is not an activity of registered traders?
c. match up buy and sell orders
***responsibility of house (commission) brokers
Floor brokers include:
e. both a and b
house brokers, independent brokers
A stop-loss order:
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
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.
c. $10,000
$5,000 = (0.50)(TOTAL) ? ?????????? =
$??,??????/??.???? = $????,000
Over-the-counter (OTC) trades must take place:
d. none of the above
**OTC is a telecommunications network linking brokers and dealers to trade
OTC stocks
Arbitrage refers to:
b. buying and selling stocks with offsetting trades to lock in profits from price differences between different markets
The aftermarket is:
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
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.
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.
d. Program trading
A receipt that represents foreign shares owned and traded by U.S. investors is called a (n):
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.
c. A best-effort agreement
. ___________________ are comprised of direct costs, the spread, and underpricing
b. Flotation costs
Federal regulation of investment banking is administered primarily under the provisions of the ___________________.
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 _____________.
d. time
***the longer the time to expiration the more likely it will become profitable to exercise the option
The ________________________, the greater the chance of the option becoming
_____________________.
b. longer the time to expiration, in-the-money
The seller of an option contract is called a (n) ____________ and the price paid for the option itself is the
called the ___________.
c. option writer, option premium
Exchange-traded options are liquid because they are standardized in terms of:
e. all of the above.
**Expiration dates, exercise prices, quality of the underlying asset, quantity of the underlying asset
While the Chicago Board Options Exchange remains the main market for exchange traded options, the
______________ exchange also deals in option contracts.
**New York, American, Pacific, Philadelphia
e. all of the above
A contract that obligates the owner to purchase or sell the underlying asset at a specified price on a specified
day is called a
b. call option contract
Futures contracts are traded on all of the following EXCEPT
e. the winner of the Super Bowl
Hedging is similar to the concept of ________________.
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)
b. derivative security
_____________ is when a broker constantly buys and sells securities from a client's portfolio in an effort to
generate commissions.
d. Churning
The capital markets are successful in allocating capital because of their
a. integrity
Insider trading laws regulate the behavior of
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):
b. put option
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