Deck 6: The Structure and Performance of Securities Markets

Question 1

The London gold fixing is an example of a(n)

A) dealer market.
B) Walrasian auction market.
C) brokered market.
D) secondary market.

Answer 1

B

Question 2

When investment bankers underwrite new stock, they

A) sell them on one of the stock exchanges.
B) auction them off to the public.
C) sell them to commercial banks who in turn find buyers.
D) place them with ultimate investors and some intermediaries throughout the country.

Answer 2

D

Question 3

The best known financial auction market is the

A) New York Stock Exchange.
B) American Stock Exchange.
C) Pacific Stock Exchange.
D) Nasdaq.

Answer 3

A

Question 4

The greater the number of buyers and sellers with access to securities markets, the

A) higher the true equilibrium price will be.
B) higher the yields on securities will be.
C) lower the yields on securities will be.
D) closer securities prices will be to the true equilibrium price.

Question 5

When an investment bank guarantees an issuer of new securities a certain price it is acting as a(n)

A) auctioneer.
B) underwriter.
C) broker.
D) dealer.

Question 6

On the New York Stock Exchange, the specialist at a "post" acts as a(n)

A) broker.
B) auctioneer.
C) dealer.
D) underwriter.

Question 7

__________ are the best example of securities that trade primarily in a brokered market.

A) Common stocks
B) Corporate bonds
C) Municipal bonds
D) Tombstones

Question 8

The three main types of securities market organization are

A) primary, secondary, and tertiary markets.
B) stock, money, and bond markets.
C) public, private, and government markets.
D) auction, dealer, and brokered markets.

Question 9

An individual who continuously bids for securities that investors want to sell and offers securities that investors want to buy is known as a(n)

A) dealer.
B) auctioneer.
C) broker.
D) underwriter.

Question 10

In financial markets, actual market prices sometimes diverge from the equilibrium price because

A) supply is often greater than demand.
B) demand is often greater than supply.
C) supply is equal to demand.
D) of geographical and temporal fragmentation.

Question 11

An individual who arranges for buyers and sellers to exchange securities and earns a commission in return is a

A) dealer.
B) auctioneer.
C) broker.
D) underwriter.

Question 12

Newly issued stocks and bonds are bought and sold in

A) primary markets.
B) auction markets.
C) futures markets.
D) commodity markets.

Question 13

A security with a high degree of marketability sells at a price that is

A) highly volatile.
B) unpredictable.
C) lower than other securities.
D) higher than the equilibrium price of less marketable securities.

Question 14

The New York Stock Exchange is an auction market in which the role of auctioneers is played by

A) brokers.
B) traders.
C) specialists.
D) agents.

Question 15

Which of the following is not true with respect to underwriting?

A) Announcements of successful underwritings are called tombstones.
B) Often a number of investments banks band together in a syndicate to market a new issue.
C) Underwritings of new issues take place on the floor of the New York Stock Exchange.
D) The investment bank typically guarantees an issuer of securities a price on the new issue.

Question 16

In return for their services in the primary securities market, investment banks earn a fee called a(n)

A) underwriting spread.
B) bid-asked spread.
C) dealer's spread.
D) broker's spread.

Question 17

The over-the-counter (OTC)market is an example of a(n)

A) dealer market.
B) brokered market.
C) auction market.
D) equilibrium market.

Question 18

The effectiveness with which markets bring buyers and sellers together is called

A) pricing efficiency.
B) operating efficiency.
C) the theory of efficient markets.
D) bid-asked spread efficiency.

Question 19

The type of market in which there is direct interaction between buyers and sellers is a(n)

A) brokered market.
B) auction market.
C) dealer market.
D) primary market.

Question 20

The spread between the bid price and the offer price is a measure of

A) the underwriters' spread.
B) brokers' fees.
C) liquidity costs.
D) sunk costs.

Question 21

Which of the following is likely to have the widest bid-asked spread?

A) A U.S Treasury bill
B) A U.S. Treasury note
C) A U.S. Treasury bond
D) A municipal bond

Question 22

A characteristic of an efficient market is that

A) prices are equal for all securities.
B) bid-asked spreads are large.
C) prices reflect all available information.
D) all investors receive a positive rate of return.

Question 23

Compared with a U.S. Treasury note, a corporate bond is likely to have a

A) wider bid-asked spread.
B) narrower bid-asked spread.
C) higher bid price.
D) higher asked price.

Question 24

Which of the following is likely to have the narrowest bid-asked spread?

A) A Nasdaq stock
B) A U.S. Treasury bill
C) A corporate bond
D) A Fannie Mae bond

Question 25

An important implication of the idea that markets are efficient is that

A) an investor can make money by buying undervalued stocks and selling overvalued ones.
B) the price of a share immediately incorporates new publicly available information that affects its value.
C) dealers can ignore some new information on a share that affects its value.
D) an investor can make above average returns in the stock market by doing careful research of public information about selected stocks.

Question 26

If orders exist in large volume, then the market has

A) depth.
B) breadth.
C) resiliency.
D) None of the above.

Question 27

A narrow bid-asked spread indicates that a security has

A) small price fluctuations.
B) high liquidity costs.
C) low transaction volume.
D) a thin market.

Question 28

If it is easy to uncover buy and sell orders above and below current transactions prices, a market is said to

A) be primary.
B) lack breadth.
C) be deep.
D) be resilient.

Question 29

Ensuring that all information relevant for the pricing of securities is available to the public is the responsibility of the

A) Federal Reserve.
B) Securities and Exchange Commission.
C) New York Stock Exchange.
D) NASD.

Question 30

The reason computers have not yet replaced trading floors can be attributed to

A) lack of sellers.
B) lack of buyers.
C) lack of liquidity.
D) lack of technology.

Question 31

The bid-asked spread is likely to be greater on securities that are

A) issued in larger denominations.
B) have low market risk.
C) less liquid.
D) traded in a deep market.

Question 32

The __________ market liquidity is, the __________ the bid-asked spread will be.

A) higher; wider
B) lower; narrower
C) higher; narrower
D) None of the above.

Question 33

If all information is reflected in current prices, the market is

A) resilient.
B) deep.
C) primary.
D) efficient.

Question 34

A key difference between a Walrasian market and most auction markets is that in most auction markets

A) transactions occur continuously.
B) bid prices exceed offer prices.
C) only dealers have complete information.
D) offer prices exceed bid prices.

Question 35

A narrow bid-asked spread on a security can be expected if

A) price fluctuations are large.
B) liquidity costs are high.
C) transactions volume is large.
D) the market is thin.

Question 36

A resilient market is one in which

A) wide price swings occur when orders decline.
B) volume picks up quickly when prices change.
C) bid-asked spreads are large.
D) volume is large.

Question 37

According to academic research, securities prices reflect new information

A) within a few minutes.
B) within a day.
C) within a week.
D) within a month.

Question 38

High transactions costs are reflected in

A) wide bid-asked spreads.
B) narrow bid-asked spreads.
C) high equilibrium prices.
D) low equilibrium prices.

Question 39

A market in which orders exist in large volume is said to have

A) depth.
B) breadth.
C) resiliency.
D) efficiency.

Question 40

If only a small volume of trading can be absorbed without producing wide price swings, a market is

A) liquid.
B) thin.
C) broad.
D) resilient.