Deck 14: Common Stock Market: II

Question 1

The most common type of order submitted to the stock market is the:

A) Market order.
B) Stop order.
C) Limit order.
D) Conditional order.
E) None of the above.

Answer 1

Market order.

Question 2

Examples of conditional orders include:

A) Limit order.
B) Stop order.
C) Market order.
D) a and b only.
E) All of the above.

Answer 2

a and b only.

Question 3

A stop order that designates a price limit is called:

A) Stop order.
B) Limit order.
C) Stop-limit order.
D) Market order.
E) Fill order.

Answer 3

Stop-limit order.

Question 4

An odd lot is defined as:

A) 100 shares of stock.
B) Less than a round lot.
C) A block trade.
D) Less than 100 shares of stock.
E) b and d only.

Question 5

A block trade is defined by the NYSE as an order of:

A) 10,000 shares of a given stock.
B) Less than a round lot.
C) Shares with a total market value of $200,000 or more.
D) a and c only.
E) All of the above.

Question 6

Exchanges impose restrictions as to when a short sale may be executed, which is referred to as:

A) Trading halts.
B) Circuit breakers.
C) Tick-test rules.
D) Price limits.
E) None of the above.

Question 7

The initial margin requirement is set by:

A) The broker.
B) The NASD.
C) The Federal Reserve.
D) The Commodity Futures Trading Commission.
E) None of the above.

Question 8

Margin calls must be satisfied:

A) In cash.
B) With additional stocks as collateral.
C) With an extension of the credit limit.
D) With commodities.
E) None of the above.

Question 9

Trading costs can be decomposed into:

A) Explicit costs.
B) Implicit costs.
C) Soft dollars.
D) a and b only.
E) All of the above.

Question 10

Impact costs, timing costs, and opportunity costs are examples of:

A) Explicit costs.
B) Implicit costs.
C) Soft dollars.
D) Hard dollars.
E) None of the above.

Question 11

Trading differences exist between retail investors and institutional investors based on:

A) Size of trade.
B) Commission.
C) Method of order execution.
D) All of the above.
E) a and b only.

Question 12

Which of the following is most correct?

A) Stock trading by individuals has increased significantly during the last decade.
B) Stock trading commissions have increased both for institutions and individuals.
C) Discount brokers and online brokers offer less service to retail investors and consequently stock trading commissions have decreased significantly.
D) Because individuals usually transact smaller orders, they will incur higher impact costs.
E) None of the above.

Question 13

The term upstairs markets refers to:

A) The markets located on the top floor of the NYSE.
B) A network of trading desks of the major securities firms and other institutional investors that communicate electronically with each other.
C) The market for trading listed stocks in the OTC market.
D) The market for trading stocks not listed on a major stock exchange.
E) None of the above.

Question 14

The major applications of program trades are:

A) Asset allocation.
B) Index arbitrage.
C) Indexing.
D) All of the above.
E) None of the above.

Question 15

Which of the following statements is most correct?

A) The largest single-day decline in the history of the U.S. stock market occurred in October 1987.
B) Rule 80A and 80B are examples of price limits.
C) The S&P 500 is the most comprehensive stock index.
D) a and b only.
E) All of the above.

Question 16

The construction of stock market indicators differs on the basis of:

A) The relative weights assigned to the stocks included in the index.
B) The method of averaging used across all the stocks.
C) The universe of stocks represented by the sample underlying the index.
D) All of the above.
E) A and b only.

Question 17

The Nikkei 225 Stock Average and the TOPIX are the indexes for the stocks of established and large companies traded on the:

A) Frankfurt Stock Exchange.
B) London Stock Exchange.
C) Tokyo Stock Exchange.
D) Toronto Stock Exchange.
E) Paris Bourse.

Question 18

Which of the following is not a market index?

A) DAX.
B) FTSE 100.
C) EAFE.
D) CAC 40.
E) All of the above are stock market indexes.

Question 19

The prices of stocks around the world move together in an exact way.

Question 20

The benefits of international stock diversification arise from international capital markets that are less than perfectly correlated.

Question 21

Strong-form market efficiency is easy to test empirically.

Question 22

The Fed has currently set the margin requirement at 20%.

Question 23

Implicit trading costs are invisible and difficult to measure.

Question 24

Distinguish between block trades and program trades.

Question 25

Discuss the reasons for why the stock market in the U.S. has undergone significant structural changes.

Question 26

The prices of stock on markets around the world do not move together in an exact way because the economic systems in which those markets are located have dissimilar economic, social and political environments. Explain the effects of these environmental factors on stock prices.